Choosing Wisely: Alberta
Following the recommendations by its Climate Change Review Panel, the Alberta government is overhauling its climate change policy. A central part of this plan is the implementation of a carbon tax in 2017. Starting at $20/tonne in 2017 and increasing the $30/tonne in 2018, the tax is expected to raise $3 billion per year. With new carbon revenue on the horizon, this provides an opportunity for Albertans to think about the best way their government can recycle these revenues. Hot off the press, the Commission’s most recent report, Choose Wisely, does just that by providing options and trade-offs of different revenue recycling options in the context of unique provincial circumstances and priorities.
What recycling priorities might fit Alberta’s context?
The report considers how Alberta’s context might make each option for revenue recycling a higher or a lower priority. To be clear, these aren’t recommendations. Provincial governments are best positioned to identify their own priorities. We can, however, take a look at how different factors might make each option a higher or lower priority for Alberta.
Transfers to households
Due to the province’s emission intensive economy and its reliance on coal-fired electricity generation, carbon costs for all households in Alberta will be higher than in other provinces. Additionally, the cost of higher electricity and energy prices will fall disproportionately on low-income households. Our analysis shows that offsetting the full burden for low-income households in the province would require transferring 3% to 9% of carbon revenue.
Income tax cuts
Alberta has some of the lowest corporate and personal income taxes in the country. As a result, cutting these taxes could be a lower priority than other revenue-recycling alternatives.
The oil and gas sector remains and is likely to remain a main driver of both GHG emission and economic activity in Alberta. Expanding carbon policy, the growth of renewable energy and the possibility of long lasting low oil prices put significant pressure on the high-cost sector. As a result, successful investments in innovation and emission-reducing technology could help improve both the environmental and economic performance of the Alberta oil and gas sector.
While Alberta has the some of the youngest public infrastructure stock in Canada, the province has underinvested in public infrastructure compared to other provinces. As such, infrastructure investments, in particular transport infrastructure, might be a priority for Alberta.
Reduction of public debt
In the short-run, using carbon pricing revenue to reduce public debt is likely a low priority as Alberta has the lowest debt-to-GDP ratio of all provinces. However, if oil prices remain low for several years, continued budget deficits are likely and avoiding future debt could become a longer-term priority for revenue recycling.
Transitional support to industry
Alberta’s economy is more vulnerable to competitiveness pressures arising from carbon pricing than those of other provinces. In this context, the government’s proposal to provide output-based allocation to large industrial emitters is warranted.
What should Alberta choose?
Carbon pricing revenue options present opportunities for Alberta to influence both its economic and environmental performance, however, it needs to choose among them.
Event: Recycling Carbon Tax Revenues in Alberta
Our expert panel discussed the the trade-offs of different revenue recycling options, including how to address household fairness and business competitiveness in Alberta.
Watch the Live Panel