Carbon Pricing and Competitiveness Pressures in Alberta

FIGURE 1b: Carbon Pricing Competitiveness Pressures by Sector in Alberta

Highlights in Alberta

  • A much larger share of Alberta’s economy is exposed to competitiveness pressures, given the importance of resource extraction sectors. The oil and natural gas sectors collectively make up around 20% of provincial GDP. Still, interactions with other fiscal policies are a critical factor not considered here. In particular, royalties paid by oil sands companies are currently based on the difference between revenues and the sum of current and capital expenditures. As a result, these royalty payments would decrease as carbon prices rise, thereby offsetting some of the impact on competitiveness (Bošković & Leach, 2014).
  • Indirect GHG emissions matter much more for provinces that rely on coal-fired electricity generation, such as Alberta and Saskatchewan. With a much more emissions-intensive electricity supply, a broad-based carbon price would lead to higher electricity costs. On the other hand, switching to gas-powered generation likely represents relatively low cost abatement; over time, indirect emissions are likely to decline in response to effective carbon-pricing policies.
  • Even though the oil and gas sectors are exposed to competitiveness pressures, they are not the most vulnerable sectors in Alberta. Fertilizer, chemical manufacturing, and petrochemical manufacturing are all considerably more emissions intensive and trade exposed—although they are much smaller as a share of the economy and thus may present less of a challenge for policy design.