With election of Liberal minority govt, Canada officially has an Alberta problem, with only one solution

The adults need to step back into the room. If they remain on the sidelines, another window may not open for years

Monday’s federal election results were the worst-case scenario for Jason Kenney and the current leadership of the Alberta oil and gas industry. Justin Trudeau is committed to net-zero emissions by 2050 and only Alberta stands between the Liberals and their climate goals. Something has to give. To ensure that “something” isn’t the high-emissions oil sands, the CEOs of the Big 5 producers must step up and reassert their authority over the industry’s climate policy strategy.

A huge battle is brewing between the Trudeau minority government and Alberta. These are the battle lines.

If the Canadian Association of Petroleum Producers hated the previous Liberal government’s climate and energy policies, the bulked-up plan released during the campaign will give them night sweats.

First, the math.

Canada emits 716 megtonnes (Mt) of CO2 equivalent per year. Alberta emits 263 Mt, 36 per cent of the national total, while the oil sands all by themselves generate over 10 per cent of that amount.  While emissions have fallen since 2005 in other provinces, like BC and Ontario, they have soared in Alberta because of expanded oil sands production.

As it stands today, Canada is already far from meeting its 2030 target  – about 200 Mt – of 30 per cent below 2005 levels. Trudeau says he is serious about catching up. Jagmeet Singh and the NDP, and perhaps Yves-François Blanchet and the Bloc, will be holding his feet to the fire given that the Liberals are 13 seats shy of a majority.

Canada will have to first arrest emissions growth, then reduce by 20 to 30 Mt per year, a Herculean task. Alberta hopes to grow oil sands output by 1 million barrels per day over the next decade.

Even CAPP can see the glaring conflict between these two goals.

Maybe – and that’s a really big maybe – they could have been reconciled if the UCP had continued with the Climate Leadership Plan of Rachel Notley’s government and followed her strategy of using it to leverage concessions from Trudeau. Instead, Kenney did the opposite, gutting the plan and making Trudeau the bogeyman of Alberta politics, even campaigning for the CPC in Ontario throughout the election.

“There’s a well-established British Parliamentary tradition that we don’t interfere in each other’s elections,” Thomas Lukaszuk, former deputy premier in Alison Redford’s PC government, told Energi Media. “When a premier is making personal allegations about the Prime Minister’s competence and abilities, it’s very difficult to rebuild that kind of a relationship.”

No kidding.

The most likely spark to ignite the powderkeg of Kenney and Trudeau friction? The national carbon budget.

This is the idea that if the national emissions target for 2030 is roughly 500 Mt, then each province’s target should be proportional to its population. For Alberta, that means 55 Mt, a reduction of about 80 per cent. Obviously not a realistic scenario.

But proponents of the carbon budget idea ask an uncomfortable question of Alberta. Why should Canadians in other provinces do more to reduce emissions just because Alberta refuses to do its share?

As climate policy ramps up during the 2020s, expect this question to be asked more frequently and more pointedly by premiers like John Horgan of BC.

Unfortunately, as of today, Alberta has no answer.

Kenney and the industry went all-in on Andrew Scheer and the CPC, and they now stand exposed and vulnerable, with few political options except threats of Alberta separation, the last refuge of scoundrels and fools.

This is a disaster waiting to happen. What might a disaster look like?

An oil sands production cap. The deal oil sands CEOs shook on with environmental groups in 2015 was an emissions cap and climate policies in return for no limits to supply increases. Kenney broke that deal, potentially putting the production cap back on the table.

A more onerous large emitter carbon tax. Harbir Chhina, VP of technology for Cenovus, told Energi Media during several interviews that oil sands producers support carbon pricing starting at a reasonable level ($20 a tonne under Notley) rising slowly over time to enable innovation and technology deployment. The “longest runway possible,” is how he put it. If Trudeau imposes the federal large emitter backstop on the oil sands and raises the carbon tax faster than originally planned, a reasonable expectation, then this sector is in trouble.

Market access is Alberta’s biggest short-term problem and solutions run at least partly through Ottawa, which holds constitutional authority over inter-provincial approvals and regulation. What if Trudeau decides to drag his feet on Trans Mountain Expansion construction or support for Keystone XL and Line 3 replacement, both of which are held up by American regulatory challenges?

Then there’s the much-reviled Bill C69, which has been enacted by Parliament but still awaits approval of regulations. Might the new rules be drawn up to include more oil sands project reviews, adding cost and delay for the industry? How will federal methane emissions regulations play out if reduction targets are beefed up?

The point here is that Trudeau has many ways to bring Alberta to heel and Kenney has almost no leverage with which to fend him off.

The Prime Minister doesn’t even have to do public battle with the Premier. He can be all smiles and sunny ways, as he was during his victory speech, but behind the scenes turn the screws ever tighter. How much sympathy will the rest of Canada extend Alberta over complaints about arcane details of carbon pricing, for example?

So, there are two ways to consider Alberta’s predicament.

One the one hand, for Kenney and his industry supporters this is an unmitigated disaster. Shaking his fist at the sky and muttering about Albexit is all the leverage he has left. Perhaps the Premier will soften his stance and be more conciliatory, but his campaign performance suggests he will not.

On the other hand, Trudeau’s minority government is a gift to the oil sands CEOs, whose companies produce 80 per cent of Alberta’s crude oil, but who ceded industry politics two years to the juniors and midcaps that seized control of CAPP and backed the UCP.

The adults need to step back into the room. If they remain on the sidelines, another window may not open for years.

By then, it might be too late.