Carbon Taxes and Financial Incentives for GHG Emissions Reductions in Alberta’s Oil Sands

1. Carbon Taxes and Financial Incentivesfor GHG Emissions Reductionsin Alberta’s Oil Sands André Plourde Department of Economics & Faculty of Public Affairs Carleton University Ottawa, Canada 31st USAEE/IAEE North American Conference Sheraton Austin, Texas 4-7 November 2012

2. Acknowledgements • I wish the thank the Alberta Departments of Energy and of Finance for granting me permission to use some of the information on which this analysis is based. • Thanks as well to CERI for copies of some of the studies published by the Institute. • All errors and omissions are my responsibility. Carbon Taxes in Alberta's Oil Sands

3. Roadmap • Context • Key Assumptions • Estimated Costs & NPVs • Levels & distribution • Introducing a Carbon Tax • Estimated implications • Who pays? • Concluding Remarks Carbon Taxes in Alberta's Oil Sands

4. Context [1] • Alberta’s sustained economic prosperity rests in no small part on ability to grow bitumen production from province’s oil sands deposits • BUT… “concerns” (in Canada & internationally) over associated GHG emissions a key risk • IDEA… examine some implications for SAGD development & production of introducing a carbon tax Carbon Taxes in Alberta's Oil Sands

5. Context [2] • Computer simulation model • Key price: US-dollar price of WTI at Cushing • Rules of thumb used to derive Canadian-dollar Alberta prices of bitumen, natural gas, electricity • Key cost assumptions from CERI (2012) • Detailed account of oil sands royalty and tax regime • Carbon tax…real (2012) $(Cdn) 5 to 50 • FOCUS… “financial incentives” to producer from carbon tax Carbon Taxes in Alberta's Oil Sands

6. Key Assumptions Carbon Taxes in Alberta's Oil Sands

7. Estimated Total Costs & NPVs Carbon Taxes in Alberta's Oil Sands

8. Distribution of Estimated NPVs Carbon Taxes in Alberta's Oil Sands

9. Carbon Taxes as Estimated Per-barrel Costs Carbon Taxes in Alberta's Oil Sands

10. Estimated Carbon Tax Borne by Producer Carbon Taxes in Alberta's Oil Sands

11. Estimated Share of Carbon Tax Borne by Producer Carbon Taxes in Alberta's Oil Sands

12. Concluding Remarks [1] • Overall, estimated increase in per-barrel cost due to introduction of carbon tax… • 1% to 10% - for tax rates of $5 to $50 • 46% to 56% of increase “borne” by producer • Rest borne by public (mostly Albertans) in form of lower royalty and CIT revenues • Share estimated borne by producer inversely related to assumed WTI price…until about $(US) 95 • (almost) Constant at higher prices Carbon Taxes in Alberta's Oil Sands

13. Concluding Remarks [2] • Think of these estimated effects as “financial incentives” to producer associated with introduction of carbon tax • IDEA… • Modelling approach does NOT allow behavioural reaction on part of SAGD producer… • In reality, producer would compare estimated effect of tax with cost of abating emissions & either pay tax or reduce emissions, whatever is in producer’s best interest Carbon Taxes in Alberta's Oil Sands