OTTAWA — Strengthening industrial carbon markets to meet the terms of the Canada-Alberta Memorandum of Understanding (MOU) would have minimal cost impact on the oil sands sector’s bottom line, according to new research from the Canadian Climate Institute.
Specifically, the Institute’s latest analysis of project-by-project compliance costs and profits found that oil sands producers would pay on average less than 50 cents a barrel in 2030, up from 9 cents a barrel today, if the minimum price of carbon credits rose to $130 a tonne by the end of the decade. That’s roughly equivalent to the cost of a Timbit, after accounting for inflation.
The Institute’s 440 Megatonnes project released a new cost calculator that allows users to explore the costs or benefits that specific oil sands projects are estimated to face under current and future industrial carbon prices. It shows that the cost of industrial carbon pricing today represents less than 1 per cent of the value of a barrel of oil—0.5 per cent of the price of Western Canadian Select at C$100 per barrel.
The new research comes in the wake of recent public comments and media reports stating that industrial carbon pricing hurts the competitiveness of Canada’s oil and gas sector—which is not supported by evidence.
On the contrary, carbon pricing protects competitiveness by design. Programs such as Alberta’s Technology Innovation and Emissions Reduction (TIER) system rely on emissions thresholds that limit costs for trade-exposed industries while still encouraging emissions reductions. Firms only pay the carbon price on the portion of emissions that exceed a performance benchmark, and can make money if their emissions are below that mark by selling carbon credits on the market or banking them for future use.
The Climate Institute also examined nearly two decades of data to assess how industrial carbon pricing has impacted the competitiveness of oil sands facilities. The analysis found no statistically significant evidence of export contraction linked to carbon pricing using 17 years of provincial trade data covering 10 provinces and 19 industrial sectors, and after accounting for commodity cycles and U.S. demand, oil prices, and provincial trends. The average estimated effect was essentially zero.
Industrial carbon pricing is the most important climate policy in Canada to reduce emissions, drive innovation, and maintain economic competitiveness, all while costing consumers next to nothing. Maintaining the planned trajectory to $130 per tonne for minimum carbon credit prices by 2030 will provide long-term certainty to the business community and help reduce carbon pollution across diverse industries.
QUOTES
“The evidence shows stronger industrial carbon pricing will cost oil sands companies just a Timbit a barrel by the end of the decade. It’s unclear how any project could claim to be uneconomical as a result of such a negligible cost—especially considering it makes up less than one per cent of the cost of a barrel of oil. Alberta and Canada have committed to strengthen industrial carbon markets; closing loopholes and raising the price of carbon credits are non-negotiable if this important policy aims to reduce emissions, while keeping costs low for industry.”
— Rick Smith, President, Canadian Climate Institute
“Our new analysis and online calculator show how low the costs are for oil sands producers from industrial carbon pricing. If carbon markets are strengthened in line with what Alberta and Canada have committed to in the MOU, industrial carbon pricing would add less than 50 cents to a barrel of oil. That’s a rounding error on balance sheets, not a competitiveness threat. If Canadian oil sands producers are truly so vulnerable to such minor costs, then they have much bigger structural competitiveness problems.”
— Dale Beugin, Executive Vice President, Canadian Climate Institute
RESOURCES
- Analysis | Industrial carbon pricing will cost just a Timbit per barrel for the oil sands sector
- Industrial carbon price calculator for oil sands producers | Facility Carbon Cost & Credit Revenue
- Insight | Why industrial carbon pricing costs the oil sands a Timbit per barrel
- Fact sheet | How industrial carbon pricing reduces emissions at minimal cost
- Insight | Industrial carbon pricing has negligible impacts on household costs – and in some cases is a benefit
CONTACTS
Krystal Northey
Lead, Public Affairs
Canadian Climate Institute
(226) 212-9883
About the Canadian Climate Institute
The Canadian Climate Institute is Canada’s leading climate change policy research organization. The Institute produces rigorous analysis, economic modelling, and in-depth research focused on incentivizing clean economic growth and low-carbon competitiveness, reducing emissions and accelerating Canada’s net zero energy transition, and making our economy and infrastructure more resilient to a warming climate.
