Here we go again…the more than $20 billion in net transfer payments from Alberta to other Canadian provinces (that’s an average of $5,000 per Albertan) just isn’t enough for some Canadian premiers.
This week, Canada’s provincial leaders gathered in Winnipeg for their annual Council of the Federation get-together. They talked about the usual things that big government - loving leaders enjoy talking about - health care is making the provinces broke so how can we raise more money for it?; the need for more ‘stimulus’ deficit spending; and, of course, how to extract more oil and gas cash out of Alberta without providing any discernable benefit to those who live there.
Albertans have seen this show so many times it makes re-runs of M.A.S.H. seem fresh. We saw it with the National Energy Program, which crippled our province’s economy for years. We see it annually with federal equalization and a host of other wealth transfer tools (like the Canadian Pension Plan and GST) where Albertans pay billions more to Ottawa for use in other provinces that we receive back in benefits or services.
It’s blatant big-government wealth redistribution, and some provinces, particularly successive governments in Quebec, have made their living on it for years.
The total wealth transfer out of Alberta stood around $20 billion last year – but that just won’t do for the premiers in question. After all, Alberta’s economy is struggling and those payments might start coming down a touch as our province grapples with a record $7.5 billion cash deficit. How will Quebec afford their $7 per day daycare if the Alberta golden goose doesn’t lay as many eggs? The answer is cap-and-trade.
Before examining this new scheme, we must make a couple of key assumptions that I hope you’re more comfortable with than I am. First off, we must assume that recent warming on earth is substantially due to man’s increasing emissions of CO2 (an ongoing and hotly contested scientific debate in and of itself). We then have to accept that even if we successfully reduce our province’s and nation’s CO2 emissions via cap-and-trade, our reductions (and the immense economic cost that will entail) will likely be offset 100-fold by increases in CO2 emissions elsewhere - particularly in India and China. And then, perhaps most difficult to stomach, one has to buy into the idea that we can run this scheme by setting up a government controlled program that will regulate every business in the country – and that this unprecedentedly large and complex program will be governed effectively without untold waste, incompetence and corruption (excuse me for having some doubts on this point).
So how would cap-and-trade work assuming the above underlying assumptions are satisfied? The provinces would agree to set a limit (aka cap) on the amount of CO2 emissions each province could emit. These allowable amounts of CO2 emissions would then be allocated to businesses as ‘emissions permits’, which would give each business the right to emit a specific amount of CO2. If a business were to exceed its allotted CO2 limit, it would purchase unused portions of another company’s emission permit (aka emission credits).
It’s kind of like having a body weight limit of 200 pounds assigned to each Canadian, after which I then go sit on the couch and eat potato chips and spoonfuls of peanut butter every day causing me to ring in at 300 pounds by year’s end. But that’s OK so long as I pay a chunk of change to someone who weighs 100 pounds to make up for my eating indiscretions. Make sense?
So, how does this system result in Alberta getting ripped off? Well, it just so happens that the three provinces pushing the cap and trade agenda the hardest are Quebec, Ontario and BC. Each of these provinces have an exceptional amount of either realized or potential hydro-generated power. Hydro-power is essentially CO2 emission free so, for example, when Hydro-Quebec receives its allotment of CO2 emissions under cap and trade, it will immediately start looking to sell its CO2 allotment to other companies as credits knowing it doesn’t need to emit the amount of CO2 allowed for by its permit.
And where will they find some desperate buyers? You guessed it – Alberta. You see, unlike hydro-power, producing oil generates a lot of CO2. If a company wants to invest in or expand an oilsands project, it will have to purchase potentially hundreds of millions of dollars worth of carbon credits from companies in Quebec, Ontario and B.C. (especially from those government owned hydro companies) in order to offset the CO2 generated during the oil extraction process.
What this means is simple. For Alberta companies who can afford to pay, truckloads of cash will be sent east to government run utility companies as well as others. For Alberta, it means less money spent in our province by these same companies investing in new jobs, technology and equipment. In fact, it means we become a less attractive place to invest in at all. If we learned anything from Premier Stelmach’s new royalty framework debacle, it was that energy investment capital flows to the jurisdiction with the most attractive investment climate. If Alberta is too expensive to invest in relative to somewhere else, that money (and the attached jobs and royalties) will go elsewhere.
Quebec, Ontario, and B.C. say this is all about getting more green…well, at least they’re honest about it.
