Carbon Tax Blues in Alberta

By Jess Sinclair

It would be the understatement of the century to say that the past two years have been tough for Albertans, particularly those whose livelihoods revolve around oil and gas. For the record, that’s the vast majority of the province’s residents, from machinists to real estate agents. The 2015 calendar year was the worst for job losses in the province since 1982. In July of 2016, Alberta’s unemployment rate superseded that of Nova Scotia, at 8.6% overall. These are staggering numbers, but they are even harder to swallow for the many men and women who have lost their jobs and for their families who are now wondering how they will make ends meet.

Enter the Alberta carbon levy, designed to serve as a financial incentive for Albertans to reduce our greenhouse gas emissions. The levy is set at $20/tonne in 2017, will increase to $30/tonne in 2018, and then top out at $50/tonne by 2022. Though certain fuels, such as marked diesel and gas used in agricultural operations, are exempt, the tax will be applied to diesel, gasoline, propane and natural gas used in transportation, heating, and to generate electricity.

The Alberta carbon tax represents the most significant tax increase in the province’s history, and it is the highest carbon levy of its kind in Canada, currently on par with Ontario’s. Unlike British Columbia’s carbon levy scheme, Alberta’s tax is not designed to be revenue-neutral. Funds raised are meant to be reinvested into the development of green energy products, improved public transit and rebates for lower-income Albertans who qualify. The remainder will pay for the Energy Efficiency Alberta program, a newly-created agency that will, according to the Government of Alberta’s website, “deliver a variety of programs and services for energy efficiency and small scale renewables.”(1) These initiatives include residential retrofit programs to improve heating and cooling efficiency, as well as cash for non-profits and community groups to help increase the energy efficiency of their facilities. The Energy Efficiency Alberta program brings the province in line with similar programs in all of Canada’s other provinces.

The provincial carbon levy was announced in late 2016. Alberta’s provincial policymakers argue that they are only getting a head start on the inevitable federally imposed carbon levy, set at $50/tonne by 2022. They assert that a number of economists believe a tax on carbon is the most effective way to reduce GHGs without unduly impacting communities, families and industries.

In reality, the timing of the tax couldn’t be worse.

If you saw a movie in an Alberta cinema over the Christmas 2016 season, you likely saw them; ads touting the virtues of the new provincial carbon levy. These ads, in addition to similar television and YouTube content, cost Albertans nearly $9 million. That’s a drop in the bucket compared with what the levy will cost Alberta businesses and individual taxpayers in terms of their monthly bills, but it’s still $9 million in unnecessary spending in a province currently facing record deficits and a downgraded credit rating. The provincial government has also conceded that the levy will reduce Alberta’s GDP by 0.4%.

So how much will the carbon tax cost Alberta families? It will be a wash for some, as rebates begin the merry-go-round ride from folks in higher tax brackets to lower-income Albertans. Others will not be so lucky – the Canadian Taxpayers Federation asserts that the levy will cost Alberta families about $600 a year in 2018 and more than $2,500 per household by 2022. This is money that could be invested in a child’s post-secondary education, in sports fees, or to put food on the table.

Fees will also increase for the province’s leisure facilities, all of which will have to pay more just to keep the lights on and buildings at the correct temperature. Larger facilities generally use natural gas for heating and cooling, and most that do are looking at a 20% increase in their bills over the next year. This will, naturally, increase as the price per tonne emitted increases. Indoor hockey arenas will be hit especially hard, as their size and the temperature demands of the ice surface make for expensive electricity and heating and cooling bills. One indoor Calgary-area facility message board recently bore a sign saying, “Dress for cool temperatures. Blankets help!”

Is this the new reality for Albertans? Wrapping ourselves in blankets to watch our kids play Canada’s favourite sport? What’s next? Will we be using brass bedpans to heat our mattresses come 2018?

And what of the carbon levy’s impact on businesses in our province? First of all, Albertans no longer enjoy Canada’s cheapest gas prices at the pump, driving up the cost for every good and service in the province as of 2017. In a recent Canadian Federation of Independent Business survey, 70% of respondents said that the carbon tax means higher input and operating costs for their business. But that’s only one side of the coin. The tax also means that the average Alberta consumer has less disposable cash to spend when they visit a small or medium-sized business — a fear shared by 67% of CFIB survey respondents.

More than 4,100 businesses closed their doors in Calgary alone in 2016(2). For existing business owners, current conditions could scarcely be worse in terms of timing for the implementation of more taxes that will force them to lay off staff or raise prices, particularly when consumers’ budgets are tighter as well. The government has reduced the small business corporate tax rate from 3% to 2% in an effort to curb the effects of the carbon levy on these companies. However, the levy, combined with the province’s $15 mandated minimum wage, a measure implemented in the fall of 2016, means that the 1% corporate tax cut will not be enough to leave business owners ahead. It also provides an opportunity for less scrupulous businesses to gouge customers on semi-essential services. The story of an Airdrie funeral home that charged two customers $100 carbon tax fees for the natural gas used in its crematorium outraged Alberta residents(3), and rightly so. None of the above inspires much optimism among Alberta’s small business community. Even so, the effects on small business pale in comparison to the carbon tax’s effects on Alberta’s family businesses; agriculture and oil and gas.

Margins are tight for most farmers this year. An early cold snap made it tough to get the crops off in their entirety, and the La Niña weather system has meant that this winter has been colder than normal, raising heating prices for those who own livestock. Even machinery needs to be kept at a decent temperature. A recent CBC article interviewed an organic farmer located in Eckville who estimated that his heating costs alone would increase by $1,000. His tractors won’t start properly if he keeps them below minus five degrees, and his hogs need to be kept at a comfortable temperature(4). The CIBC estimates that, at $50/tonne, the carbon tax will raise fertilizer prices as much as $6 an acre. The average Alberta farmer has 1,168 acres of land. That amounts to an extra $7,000 in fertilizer costs alone. This is to say nothing of the additional transport costs to farmers (and many other industries in rural Alberta). While marked diesel and gasoline are currently exempt from the carbon tax, farm fuel purchases do not extend to farmers’ suppliers, making most all of the products they use more expensive.

Finally, there is the elephant in the room; Alberta’s oil and gas industry – the crown jewel of our province’s economy. How will oil and gas families be affected by the carbon tax? Let us count the ways.

First, there is the aforementioned marked fuel. CAODC drilling rig member companies are able to use marked fuel and all of the natural gas they please on site without being levied, but once they are on the road, this rule no longer applies. The province’s service rig operators use clear diesel while on public roadways, which is not exempt. The Carbon Levy Fuel User Exemption Application form clearly indicates that activities “integral to the drilling completion, workover or abandonment of a gas or oil well” should qualify for an exemption. But this does not presently cover our service rig company members.

This means less money all the way down the line. CAODC member Mike Bunney of Brandette Well Servicing notes that, “This new tax grab further reduces service rig companies’ ability to pay good wages to their workers who get up every day to work in the harsh elements associated with service rig work. There are getting to be fewer and fewer workers willing to tolerate this type of work and lifestyle unless they are paid accordingly, so lowering wages will not attract the competent hard working personnel that this industry requires to work safely and efficiently.”

Mike Kallal of Mustang Well Services — another CAODC member — echoes these sentiments, saying that it’s been increasingly difficult to pass the costs of the tax on to the drilling companies that Mustang does business with. “These [drilling companies] are exempt from paying the tax for the meantime, as they use marked gasoline and diesel in their operations. It’s a tough sell to ask them to pay more for the same services.”

On a broader level, the carbon tax (in tandem with the current methane reduction protocol and cap on oilsands emissions) hardly signals that Alberta is “open for business.” Investor confidence, already shaken by the recent downturn, is not improved when significant tax increases are levied. Alberta fell 22 spots in the Fraser Institute’s Global Petroleum Survey between 2014 and 2015 (from 22nd place to 38th overall) because of investor fears regarding increased corporate taxation a tighter royalty framework. The carbon tax does little to improve our prospects in 2017.

On November 8th, 2016, our sector’s outlook changed again with the election of President Donald Trump. Though the approval of the Keystone XL pipeline is a boon to the industry, we are looking at a much more competitive U.S. market in oil and gas. The shale gas revolution means that America is closer to energy independence than ever before. Many environmental regulations and export caps will be relaxed. “Drill, baby, drill” is the order of the day, and carbon taxes are not on the agenda for much of the country, though Rhode Island is looking at becoming the first state to implement one. Australia has repealed its $23/tonne carbon tax that saw electricity prices increase by 25%. France has done the same. Many others are ramping up their natural gas production capabilities.

This is the world in which Canada’s energy industry must compete. Our provincial and federal governments have been elected to represent Albertans and Canadians, respectively, not to kowtow to global green fads. Many economists agree that carbon taxation does little to actually move the needle on GHG emissions(5). Instead carbon levies unfairly target specific industries and punish consumers and small business. At a time when Albertans in all tax brackets are already struggling, we don’t need government to make it even tougher to make ends meet.

After all, when your house is on fire, you don’t pour on more gasoline. Especially if that gas now costs you $0.29 a litre in taxes in this province.

Sources:
1     https://www.alberta.ca/energy-efficiency-alberta.aspx
2     http://calgary.ctvnews.ca/calgary-says-goodbye-to-more-than-4-000-businesses-in-2016-1.3025737
3    http://www.cbc.ca/news/canada/calgary/go-public-cremation-carbon-tax-funeral-home-1.3929133
4    http://www.cbc.ca/news/business/understanding-why-alberta-farmers-loathe-the-carbon-tax-1.3943040
5    http://instituteforenergyresearch.org/wp-content/uploads/2009/03/Carbon_Taxes_Primer.pdf

 

Help Ax the Tax! Sign the Petition!

Mark Scholz and John Bayko recently invited Shaun Brinkhurst to an Oil Respect podcast discussing Alberta’s carbon tax situation and her team’s efforts to get the Alberta Legislature to scrap it. Her team needs 500,000 signatures to get the petition tabled. To hear the Pason-sponsored podcast, check out Oil Respect on soundcloud.com

Shaun Brinkhurst is a woman on a mission. She wants the Alberta government to scrap the carbon levy. Brinkhurst is one of a group of Albertans from across the province who have initiated a petition to do just that. They are concerned about the impact the levy will have on businesses in the province — particularly the agriculture and energy sectors.

“The first causalities of the carbon tax have been semi-truck drivers, as the [cost of] the fuel that they require to serve the cities and towns of Alberta has gone through the roof,” Brinkhurst says. But more financial hardship is coming, as “retail, service, and other industries have already had to raise their costs to cover the costs of the newly-imposed carbon levy. Families in Alberta have been hit with the highest unemployment rates in years and now to add insult to injury, they’re being hit with the added costs of the carbon tax. Already tight purse strings become even tighter, with families using their savings to purchase daily necessities just to survive.”

And the rebate program is not helping matters, providing barely enough money for affected families to fill up their fuel tanks a few times, while heating and energy bills skyrocket, according to proponents of the petition.

Brinkhurst and her group of grassroots associates have been distributing the petition throughout the province, and Albertans have been eager to get on board. The group has a goal of collecting 500,000 signatures by late spring so that the petition qualifies to be tabled in the Alberta Legislature.

The oil and gas industry is particularly close to Brinkhurst’s heart. “My sons and family friends have worked in the oilfield in various capacities over the past 10 to 15 years,” she says “I have witnessed the sacrifices that oilfield families make regularly to ensure that we consumers enjoy the benefits of their hard work on a daily basis.”

Because the petition is intended to be tabled in the provincial Legislature, the sheets are numbered and vetted as per government protocol. If you and your team want to sign on, you can reach out to Shaun at [email protected]. This is a fantastic opportunity to make your voice heard about a tax that disproportionally targets rural Albertans and specific industries.

Let’s let the government know that we want to work toward a province that is ‘open for business’!