Will 40/40 Take the Heat off Edmonton?

04/08/2013 05:19 EDT | Updated 06/06/2013 05:12 EDT

The climate and energy challenge is frequently portrayed as a world of absolutes. We are either doomed, or salvation is just around the corner. We have either missed the narrow window to forestall disaster, or are told it is premature to act in the face of persistent uncertainties.

But even the most resolute climate hawks know that there is no black and white--only various shades of grey, usually in the form of messy trade-offs. It is important to acknowledge steady progress, but also place it against the context of the hard work that lies ahead.

It is in this spirit that we weigh the Government of Alberta's new 40/40 climate change proposal which, it must be noted, is just that--a proposal.

When you do the math, the scheme would compel large polluters to reduce their emissions by 40 percent, or pay the equivalent of $40 per tonne of carbon pollution that they pump into the atmosphere. While this is more than Ottawa had expected, many oil sands producers have already been making long-term plans assuming a much higher "shadow" price. In fact, such a move might even improve the bottom line of oil sands operators if it helps them get their product to higher-priced markets.

The province is not floating this trial balloon altruistically. It's doing so in a transparent effort to secure social license--the tacit "permission" of the people, if you will, both at home and in the United States--that it needs to build new pipelines pointing south, east, and west.

The industry has a long row to hoe. Escalating protests from environmental groups are having their intended effect. The Canadian public, which for years has been hearing about "responsible" oil sands development while observing just the opposite, has its guard up. A number of high-profile pipeline spills on both sides of the border haven't helped the industry's case. Nor has the fact that the oil sands are Canada's fastest growing source of carbon pollution. As the former CEO of the National Roundtable on Environment and Economy recently wrote, Alberta's carbon problem is Canada's, too.

So does Alberta's proposal go far enough? To answer that, we need to understand how much closer it takes us to where we need to be.

Our country has committed to limit the long-term average increase in the global temperature to two degrees celsius--beyond which point, things start to get really hairy. To have a 50:50 shot at achieving this goal, we need to stabilize atmospheric concentrations of greenhouse gases at no higher than 450 parts per million of carbon dioxide equivalent.

In 2010, in an effort to figure out what that might look like on the ground, the International Energy Agency (IEA) modelled what it called a 450 Scenario, which explicitly looked at Canada's oil sands. In this scenario, thanks to technologies like carbon capture and storage, oil sands production would continue to grow, cresting three million barrels per day of production in 2035. That is about 50 percent higher than today's extraction rates--but less than what Alberta regulators have already approved. A key assumption of the 450 Scenario was that OECD countries would adopt a carbon price, starting at $45 per tonne in 2020, rising to $105 per tonne by 2030, and meeting $120 per tonne in 2035.

But more recent analysis suggests that the carbon price must actually be significantly higher by 2020--on the order of $100 per tonne--if Canada is to meet the federal government's target.

Within this context, a pollution price of $40 in Alberta is a strong first step, but it should also be bolstered by a clear commitment and schedule to increase its price on pollution in the coming years. Until these subsequent steps are grounded in policy, the 40/40 toe in the water does not advance Alberta or Canada very far down the path at all.

To secure social license from a wary public and give businesses the certainty they badly need, Alberta will need to continue increasing its carbon price over time--and that commitment needs to be made now. Anything less won't take the political heat off of Edmonton, or the heat off the world.