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Pipeline fight splits Canada

Alberta is trying to transform its image and pry open new markets

It wasn't supposed to be like this when Rachel Notley was elected premier of Canada's largest oil producing province after 45 years of a pro-industry regime. Notley, of the left-leaning New Democratic Party, vowed to transform Alberta from a laggard petro-state to a 21st century environmental leader when she took office. On top of slowing carbon emissions in line with Canada's Paris commitments, cleaning up the oil sands' stained image, went the argument, would make it easier to expand into new global markets and further increase oil production.

She may well have bitten off more than she could chew.

The challenge for Notley was vexing from the start. She had to balance her left-leaning constituency with the economic interests of a province built on the back of the oil industry.

To address the problem, Notley in 2015 introduced both a cap on total carbon emissions and a carbon tax as part of a sweeping remake of climate change policies.

Alberta—and specifically the oil sandsaccounts for about half of the country's industrial greenhouse gas emissions at 70 megatonnes (Mt) per year; and just under 10% of its gross emissions of about 780 Mt per year. Under an agreement struck between industry and government, oil sands emissions will be allowed to rise nearly 50% to 100 Mt per year by 2030where they have been capped.

The tax wasn't the country's first, but may be its most ambitious. On 1 January it jumped 50% to C$30 ($24.14) per tonne of emitted CO2 and will rise in steady increments to C$50/t by 2020.

The levy applies to everything from fuel taxes to home heating bills. The tax will cost Alberta's consumers anywhere from C$70-$106 per family per year according to the government, though most of that will be rebated back to households. The effect could be a 0.1% dent in economic growth, say economists at the University of Calgary. It's a small change in a province expected to grow 6.7% this year.

Notley, and other backers, insist the new carbon-cutting measures are vital to the oil sands' competitiveness in a carbon-constrained world. They argue it will help win over domestic critics of the oil sands, allowing for new pipelines to be built, and international buyers who might otherwise shun Alberta's carbon-intense crude.

They also say the windfallsome C$5.4bn by 2020—could lead to economic diversification for the petro-dependent province; the proceeds are to be invested in clean energy technology such as wind power and carbon capture and sequestration (CCS).

The tax is alternately seen as the price to pay for being one of the largest oil producers on the planet or an exercise in social engineering. According to Andrew Leach, an economist at the University of Alberta and the main architect of the tax, the purpose of the exercise is both, whilst bringing about a step change in how Albertans think about consuming and producing energy.

On 15 January the federal government outlined its own carbon pricing policies, which Leach notes are essentially the "Alberta model" adopted by the Notley government and a validation of his proposals. He argues that the tax has transformed Alberta from a "climate change laggard to a leadership position" in less than 36 months. While acknowledging opposition to oil sands production still exists, the anti-oil activists have effectively lost control of the debate. "It's nowhere near what it was two years ago."

Even as opposition to oil sands has gone down, opposition to the tax has increased.

Not surprisingly, most Albertans, who are known for their love of gas-guzzling pickups and SUVs despise the tax. Equally unsurprising, most non-Albertans despise Albertans for despising the tax in the first place.

Leach has been unable to make both sides happy. Critics from both sides of the argumentincluding Saskatchewan's conservative former premier Brad Wall, who lashed out in a Trump-like Twitter attack on Leachhave roundly criticised him for going too far, or alternately, not far enough. Nonetheless, Leach stands by the tax even if he agrees it has flaws.

The easiest way to avoid paying the price, Leach insists, is to drive less and increase the energy efficiency of homes through the installation of high efficiency furnaces and LED lightbulbs. Ironically, he also stands behind new pipelines to each of Canada's coastsa point he says can be reconciled in principle, if not practical application of policy.

"Nobody likes paying more taxes", he said in an interview. "It depends on what you think the alternatives are if you agree (to reduce emissions). Yes or no? The question is, are we going to do it in a way that Alberta wants, or a way that Ottawa wants?"

Alberta's government argues the carbon tax is penance for federal National Energy Board (NEB) regulatory approval of American pipeline builder KinderMorgan's proposed TransMountain expansion (TMX) to Canada's west coast in 2016. The C$7.5bn expansion would triple capacity on an existing pipeline across the Rocky Mountains to British Columbia (BC). If built, oil sands producers would be able to start exporting nearly 1m barrels a day through the Vancouver suburb of Burnaby to oil-thirsty markets in Asia.

The line would be an economic boon to both producers and the governments in Edmonton, Aberta's capital, and Ottawa.

If it were so simple. People on Canada's West Coastthe spiritual home of the country's environmental movementhate the pipeline almost as much as Albertans hate the carbon tax. Three quarters of the line must pass through their territory. If the carbon tax was meant to defang the oil sands' domestic pipeline foes, the fight in BC shows it hasn't worked that way yet.

Warring provinces

After three years of heated rhetoric over TMX, the uneasy détente between the two provinces came crashing down after the BC government in January threatened to cap oil exports off its coast and take other steps to block the line. Native groups took up blockades on Burnaby Mountain in protest.

Specifically, BC wants to commission a study into oil spills that could tie the already delayed project up in red tape for years. It's just the latest in a series of legal landmines designed to prevent expansion of the world's third-largest oil reserves and diversify dependence on a single market-the US.

Reaction was swift and fierce on both sides, putting Prime Minister Justin Trudeau's government awkwardly in the middle. Notley warned that "the gloves are off " after BC's de facto bitumen block-ade. Calgary's mayor, Naheed NenshiCanada's first and only Muslim to hold the position and with decidedly progressive leaningscalled it a "dangerous stunt" on the part of BC's politicians. In turn, British Columbians feel betrayed by a prime minister who campaigned on environmental issues and a promise to protect the coast.

Trudeauwhose father Pierre was notoriously antagonistic to the oil industryvowed in Edmonton on 1 February to intervene if necessary to get the pipeline built. At a public appearance in Nanaimo, BC, on Vancouver Island, the next day he was roundly criticised for the comments.

Many in Alberta's oil patch doubt Trudeau's commitment. Nonetheless, his energy minister Jim Carr backed up his pledge to get the pipeline built with thinly veiled threats of court action if BC fails to hand over the permits.

The BC government's refusal to issue permits sets the stage for a constitutional showdown, the likes of which Canada has never seen and one that will surely go to its Supreme Court.

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