CEO Cenovus Jon McKenzie at The Globe and Mail’s Intersect event in Calgary on Wednesday.Todd Korol/The Globe and Mail
Carbon pricing does nothing to incentivize the oil and gas sector to reduce its greenhouse gas emissions, says the head of Cenovus Energy Inc. CVE-T, as Ottawa and Alberta draw ever-nearer to implementing a $130-a-tonne price in the province by 2040.
A deal on carbon pricing, expected this week, would bring the governments closer to finalizing the fine print of a memorandum of understanding signed last year that conditioned Ottawa’s support for a potential pipeline on Alberta increasing the carbon price and meeting other environmental goals.
Ottawa, Alberta close to reaching industrial carbon pricing deal, sources say
Jon McKenzie, chief executive of Calgary-based Cenovus, said Wednesday that a carbon tax only works when costs can be passed down to consumers, who see a higher price and reduce their consumption, thereby decreasing demand for the product in question.
That’s not the case with oil and gas, he said. “We compete in a global market, so the products that we sell get a global price. We’re not able to pass that along to the consumers.”
The federal cabinet met on Wednesday to go over the industrial carbon price deal. Following the meeting, a source familiar with the discussions confirmed that the price would be set at $130 a tonne by 2040 for what’s called an effective price on carbon, otherwise known as the market price. The Globe and Mail first reported the price deal earlier this week.
However, the headline price – or policy price – would be set at $100 a tonne in 2027, rising to $130 a tonne in 2035, the source said. After that it would go up by 1.5 per cent each year as an inflationary escalator, starting in 2036.
The Globe is not identifying the source, who was not authorized to disclose the still private plans.
The agreement would also include escalating price floors to ensure Canada’s heavy emitters have continued incentives to reduce their emission footprint each year, the source said.
Earlier this month, Mr. McKenzie said Canada’s energy policies have been too focused on climate, making resource development and investment in the country uncompetitive with the rest of the world.
Speaking at The Globe’s Intersect event in Calgary, Mr. McKenzie said a carbon price is a cost of doing business that has to be incorporated into any investment decision.
But when it’s combined with the effects of various federal policies – including an oil tanker ban in Northern British Columbia and methane regulations – it presents “an incredibly complicated policy framework that makes investments in Canada difficult and non-competitive with other countries, like the U.S. and countries in Asia,” he said.
Capital has fled Canada as a result, he said, including U.S. and European companies.
“We’re really left with what I think is a hollowed-out industry.”
Among climate groups, reaction to the first details on the carbon price accord has been mixed.
Michael Bernstein, with Clean Prosperity, said the Justin Trudeau-era climate plan and carbon price were never likely to work as expected and risked driving industry and economic growth out of Canada by going too fast and hurting competitiveness. He said the new plan needs to strike a balance by being strict enough to drive emissions reductions but not so harsh that it kills business.
“We needed to reset the climate regime we had before and be more pragmatic in our approach,” he said in a Wednesday interview.
Still, he said the industrial carbon price is the “back bone” of Canadian climate policy and it needs to be strong enough to spur investments in decarbonization. He reserved judgment on whether $130 a tonne by 2040 would be enough, saying it will depend on the details.
Canada’s ‘myopic’ energy approach threatens historic opportunity for producers, Cenovus CEO says
That sentiment is not held by others.
The Canadian Climate Institute had been advocating for the federal government to strike a deal that would ensure a $130 a tonne price by 2030. Its president, Rick Smith, argued that timeline would have been a reasonable option to cut emissions while not imposing too strong a cost on industry.
Catherine Abreu, with the International Climate Politics Hub, said the new carbon price represents “a big loss for climate and environmental protection in Canada, and a big win for Canada’s fossil fuel industry.”
Given the number of policies that Mr. Carney has reversed or watered down since coming to office, it puts Canada’s entire climate plan in doubt, she said.
“It’s difficult for me to say that we have a coherent plan to take action on climate change in Canada.”