INSIGHT: Smith Government’s Net Zero Emissions Commitment Could Cost Alberta’s Economy Nearly $400 Billion Through 2050

 

By Lennie Kaplan

The Smith government’s commitment to achieve Alberta net zero greenhouse gas emissions (Alberta NZE) by 2050 could result in an estimated $397 billion or 3% loss in economic activity (GDP) over 25 years (2025 to 2050) compared to business-as-usual (BAU). This is among the key insights drawn from new custom modeling prepared for me by Navius Research, using its highly regarded gTech/IESD model.

There continues to be little or no talk from the Alberta government about the impact of Alberta’s promise to reach Alberta NZE 2050. The commitment to Alberta NZE 2050 has been a cornerstone of Alberta’s climate change strategy since April 2023, But, the Alberta government does not want to share its economic and fiscal impact assessment of Alberta NZE 2050, despite numerous Access to Information (ATI) requests I have submitted over the past few years. The new analysis, presented here, serves to fill this considerable void.

In my analysis, I look at the difference between two policy scenarios, a business-as-usual (BAU) case known as the Announced Policy Scenario and a Net Zero Policy Scenario.

Under the Announced Policy Scenario, I assume a binding effective Alberta TIER/carbon price of $130.00 per tonne by 2030 and hold that price stable in nominal terms out to 2050.  This is roughly analogous to the aspirations established under the Canada-Alberta Implementation Agreement on carbon pricing.

While the Canada-Alberta implementation agreement on carbon pricing references a $130.00 per tonne effective carbon price, it provides no mechanism to achieve that other than through a price floor. Currently, the effective carbon price is mostly just a policy objective, not the actual policy itself. This awaits filling in the considerable details from actual policy design. Thus, the economic impacts of Alberta NZE 2050 as described below are likely understated.

As for the Net Zero Policy Scenario, an economy-wide emissions cap mandates a linear decrease to reach Alberta NZE by 2050.  In this respect, I assume the Alberta government pursues the lowest cost policy path to net zero.

Both policy scenarios include the elimination of the Oil and Gas Emissions Cap (OGEC); elimination of the Clean Electricity Regulation (CER); a 75% reduction in methane emissions below 2014 levels by 2035; and continuation of federal and provincial investment tax credits (ITCs) for clean emissions reduction technologies, such as carbon capture and storage (CCS).

I use prudent assumptions for oil prices and the cost of various emissions reduction technologies, including CCS and hydrogen, and assume the availability of small modular nuclear reactors (SMRs) and direct air capture (DAC). These emissions reduction technologies are all critical elements of the Alberta government’s 2023 climate change strategy.

The modeling also assumes an increase in Alberta’s oil production to around 7.6 million barrels per day by 2035, roughly aligned with the Alberta government’s roadmap target of 8 mb/d by 2035.

Key insights drawn from my analysis, comparing the Announced Policy Scenario versus the Net Zero Policy Scenario, include:

• Alberta’s economy activity or GDP is estimated to be $45 billion (2021$) or 6% lower from BAU in 2050.
• Alberta’s cumulative economic activity or GDP is estimated to be $397 billion or 3% lower from BAU between 2025 and 2050.
• Alberta’s cumulative oil and gas sector (excluding oil sands) GDP is estimated to be $193 billion or 11% lower from BAU between 2025 and 2050.
• Alberta’s total employment, expressed in full-time equivalents (FTEs), is estimated to be 126,000 or 3.4% lower from BAU in 2050.
• Alberta’s oil and gas sector (excluding oil sands) employment is estimated to be 37,000 or 21% lower from BAU in 2050.
• Alberta’s oil production is estimated to be 1.1 million barrels per day or 14% lower from BAU in 2050.
• Alberta’s oil sands production is estimated to be 514,000 barrels per day or 9% lower from BAU in 2050.
• Alberta government total revenues are estimated to be $5 billion (2021$) or 6% lower from BAU in 2050.
• Alberta government cumulative total revenues are estimated to be $51 billion or 3% lower from BAU between 2025 and 2050.

The Alberta government’s doubling down on NZE by 2050 in the Canada-Alberta MOU, without providing any comprehensive impact analysis to Albertans, is concerning to me.

Unless the Alberta government can produce its own numbers suggesting the impact will be much lower than my analysis implies, it should consider scrapping NZE 2050 and establish more realistic and achievable emission reduction targets for the province.

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Lennie Kaplan spent over two decades in the public service of Alberta, including as a senior manager in the Fiscal and Economic Policy Division of the Ministry of Treasury Board and Finance, where he worked on cross-ministry initiatives evaluating the fiscal and economic impacts of federal and provincial energy and climate change policies, including participating on the Clean Energy Strategic Advisory Committee (CESAT). In 2019, he provided initial policy advice to the Alberta government leading to the development of the Technology Innovation and Emissions Reductions (TIER) regime.

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