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Climate policies could cost the federal government up to $98 billion in lost revenue from Alberta

Lennie Kaplan

There has been little detailed public analysis of how combined federal and provincial climate change policies impact federal revenues collected in Alberta. These policies include the Healthy Environment and Healthy Economy (HEHE) policies, the Emissions Reduction Plan (ERP), the proposed oil and gas emissions cap (OGEC), and the 75 percent reduction in oil and gas methane emissions, covering the period from 2025 to 2050.

A thorough analysis is necessary because focusing on a single policy doesn’t provide the full picture. The combined effect of all climate change policies is significant. My findings show that implementing all climate change policies could result in a cumulative loss of federal revenues in Alberta ranging from $39 billion (optimistic scenario) to $98 billion (pessimistic scenario) between 2025 and 2050, depending on technology costs.

To understand this impact, I used Navius Research’s gTech-IESD model to simulate the effects of different policy scenarios on federal revenues in Alberta. Navius Research is a leading independent Canadian consulting firm specializing in energy and climate policy impacts. Their gTech-IESD model is one of the most advanced climate change models available.

climate alberta revenues
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We compared two policy scenarios:

  1. Legislated Policy Scenario (reference case): This includes all current federal and provincial policies but excludes the proposed oil and gas emissions cap (OGEC), Clean Electricity Regulation (CER), and other developing policies. It assumes Alberta’s carbon price (TIER) and the federal fuel charge will rise to $170 per tonne by 2030.
  2. ERP Policy Scenario (more stringent): This includes all current and developing federal and provincial policies, such as the ERP, HEHE, OGEC, CER, and more. It assumes Alberta’s TIER and the OGEC do not overlap, maintaining a $170 per tonne price signal. The federal fuel charge also rises to $170 per tonne by 2030.

We analyzed the differences in federal revenues collected in Alberta between these scenarios from 2025 to 2050, focusing on major revenue sources like personal and corporate income taxes.

To add depth to our analysis, we considered three technology cost scenarios: pessimistic, intermediate (reference case), and optimistic. These scenarios vary the costs for carbon capture and storage (CCS), direct air capture (DAC), renewable generation, and battery technologies through 2050.

Key findings include:

  • Under the more stringent ERP Policy Scenario compared to the reference case, federal revenues collected in Alberta could be $1 billion to $2 billion lower in 2030 and $2 billion to $5 billion lower in 2050.
  • Cumulative federal revenues collected in Alberta from 2025 to 2050 could be $39 billion (optimistic), $58 billion (reference), and $98 billion (pessimistic) lower under the ERP Policy Scenario than under the reference case.

Our analysis shows that the negative impact on federal revenues in Alberta can be reduced if technology costs for CCS, DAC, renewable generation, and battery technologies decrease faster than expected. This explains the wide range of potential impacts.

In summary, examining climate change policies as a whole provides a clearer understanding of their combined effects. Our comprehensive analysis using the Navius gTech-IESD model reveals the complex interactions between all federal and provincial climate change policies and underscores the need for strategic planning to balance economic and environmental goals.

Lennie Kaplan spent over two decades in the public service of Alberta, including as a senior manager in the fiscal and economic policy division of the Ministry of Treasury Board and Finance, where he worked on cross-ministry initiatives evaluating the fiscal and economic impacts of federal and provincial climate change policies.

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