
By: Nick Clark
The Canadian and provincial governments are kicking around the concept of a National Carbon Tax. Meanwhile, Alberta moves forward with gusto.
March 3, 2016: Ben Thibault, electricity program director at the Pembina Institute puts forth the opinion that, as coal is phased out, the “...likelihood of significant wholesale electricity price increases in the longer term is limited.” Pembina’s opinion is premised on the belief that coal plants can be phased out in a progressive manner with little to no compensation necessary to the companies or consumers impacted by closing the production facilities earlier than originally planned. Ben added: “To take industry’s word on the amount of money it says it needs (to shut down coal plants prematurely prior to end of life economic plan) is skewed to say the least.”
We often find opinions such as those expressed by individuals such as Ben are people who have zero dollars invested in the market; there’s no fear or risk of consequence.
Seriously, folks, please understand: When the market is shorted by shutting down a base load generator, wholesale costs charged by generators will become volatile. This means that consumers face higher retail prices because of the energy they consume. This happened regularly in Alberta over the last 15 or so years. Our leaders should be fearful of this happening again.
Do our politicians have an ideological obsession with carbon emissions? I do support taking action for climate change. Yet, it’s naïve to think there isn’t going to be a high cost for the path chosen by the NDP.
In our opinion, Pembina is wrong. Even worse, our political leaders are not seriously looking at all the numbers.
As a consumer, if we are going to be asked by our government to invest in climate change, then let’s hope the decision is scientifically sound, environmentally sustainable, and financially realistic. We recommend caution when it comes to the potential debt the government could put on the shoulders of consumers. Is it wise to increase the debt burden? Open transparency is recommended.
Yet, the question is moot since the government tasked the Alberta Electric System Operator (AESO) to add capacity for renewable electricity generation in support of the Climate Leadership Plan. AESO also is expected supplement the plan with an incentive program.
Given such incentives, we need a base line, so we can measure what will happen to our cost of energy over the years to come. The cost of electricity at the wholesale level fell dramatically over the last few years and, today, we have a record low that is finally stabilized. Once provincial and federal environmental carbon tax strategies are implemented, can Pembina or our government guarantee that wholesale and consumer prices will not increase?
Of course, they can’t. Surly, they have run economic models to paint a picture that consumers can understand. Try this: Best Case. Probable. Worst Case.

To remind, during the last few years, the cost of electricity has declined and consumers have the option of buying electricity at prices in the 3 cent range per kWh while generators are being paid under $20 per MW.
Baseline cost of electricity
Historically (since 2000), the wholesale cost of electricity averaged $60 per MW with all the peaks and valleys built in the price paid to the generators in Alberta. During the last 3 years, the cost fell 75% from a high of $80/MW in 2013 to under $20/MW. What does this mean to consumers? Last month, many Alberta consumers on the Variable Floating Rate paid 2.9 cents per kWh for the energy they consumed (and some customer slightly less). Even if you add 100% Green Offsets to the cost of electricity (which Alberta Green Energy is selling for 1.66 cents per kWh), the total cost of energy you consume today is still less than 5 cents a kWh.
Market viewpoint of Alberta’s Carbon Tax
Taxes, plant closures, risk analytics and subsidies undoubtedly will cause these prices to start to increase. Consumers must be spinning in circles with so many stats floating around. By some projections, Alberta’s Carbon Tax plan is forecasted to cost the average Alberta household $480 annually by 2018 and double that amount by 2018. One Standard & Poor’s analyst estimates that $7 billion in additional debt will be contracted by power companies in building green energy projects sooner than expected. EDC Associates projected incentives between 6 and 8.5 cents per kWh for wind, and higher for solar, to attract investments to meet the environmental targets.
Given that some consumes actually paid only 2.9 cents per kWh last month, it will not surprise to know we will start to see prices balloon. As recently noted by The Montreal Economic Institute, Alberta’s alternative energy power generation plans can be expected to cost Albertans more for power in the future.
There is much to consider. Larry Martin, Special contributor to The Financial Post, questions if Canada already may be carbon neutral. Of the billions of tonnes of CO2 emissions, it is estimated that:
- 36% stayed in the atmosphere;
- 27% absorbed by water;
- 37% absorbed by land.
Not all CO2 emitted stays in the atmosphere. Much of it returns to the earth, mainly through the carbon absorption and sequestration power of plants, soil, and trees. As noted by Martin, capacity based on land area and the global carbon-absorption average, Canada could already be absorbing 20 to 30 per cent more CO2 than we emit. Using the same calculation, the “Big Four” polluters of China, the U.S., the European Union, and India, which together are responsible for a whopping 60 per cent of global CO2 emissions, release 10 times more CO2 than their combined land area absorbs.
Recommendation: Audit Alberta’s capacity for carbon absorption
Ask Pembina and our government to audit Alberta’s absorption capacity. Do this before closing down coal plants and spending billions of dollars (which we don’t have) on subsidies for green generation. Ask these questions:
- How much CO2 do our forests and land absorb?
- Do some trees and topographies perform better than others?
- What is Albert’s carbon balance?
- How much is it going to cost to shutdown coal plants, pay the carbon tax, build new wind and solar energy facilities?
- Will retail prices increase above the current 2.9 cent rate? If so, by how much?
An honest, upfront and informed debate by our political leaders free of vested interest posturing is welcome.