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Price Setting
Alberta’s Oil Sands Brace for Carbon Tax

Our northern neighbor is putting a price on carbon. More specifically, Alberta—Canada’s most hydrocarbon-rich province—plans to roll out a carbon tax in 2017 with the intention of raking in $2.25 billion annually. The province estimates that the tax will cost households more than 300 CAD in the first year, and almost 500 CAD in 2018. But it’s the oil sands industry that will be eying this plan with the most trepidation, as high-cost production, already hit by cheap oil prices, now seems set to be saddled with a new tax. As Bloomberg reports, oil companies are hoping they can innovate their way out of this new problem:

[P]roducers from Suncor Energy Inc. to Royal Dutch Shell Plc are counting on technology to help make bitumen a low-carbon fuel. The pressure is mounting as Premier Rachel Notley’s new policies are poised to be matched by federal as well as global efforts to curb CO2 pollution at United Nations talks in Paris next week. […]

The changes won’t be cheap or easy. Oil-sands producers in northern Alberta have become some of the largest carbon emitters in the industry because they burn huge amounts of natural gas to make steam used to melt bitumen and pump it to the surface.

Most of the technology that would significantly put a dent in their carbon emissions — such as using electromagnetic waves and solvents instead of steam — is still years away from being deployed on a large scale. The challenge is to reverse annual carbon output that’s quadrupled since 1990 to about 70 megatons.

Despite flagging prices, oil sands production is expected to increase 25 percent by 2017, adding more crude to an already oversupplied market. That’s because of the relatively high-cost nature of these projects—so much money has already been invested that for many firms, pulling out just isn’t an option. It’s in this climate of borderline desperation that the province is now crafting this carbon tax policy.

It’s far too early to divine what this means for Alberta’s energy future, though it should be noted that the province’s ability to cope with these trying market conditions has huge implications for Canada’s aspirations for joining the North American hydrocarbon renaissance. U.S. shale producers have typified the kind of innovative spirit these oil sands companies are hoping to imitate, but that won’t be easy for them to do: With shale wells being typically short-lived and (no pun intended) smaller-bore, while oil sands projects are massive in scope and capital expense, the two kinds of production could not be more different.

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