Shooting off your nose to spite your face.That sums up a new report by the Conference Board of Canada that has confirmed what Alberta’s oil patch has been saying for months: a cap on oil and gas emissions amounts to a cut in oil production.And it will cost both the governments of Alberta and Canada, dearly.The Board said Tuesday the proposed federal emissions cap would cost the Alberta government $4.5 billion in lost revenue by 2030 at a price tag of $2,100 in reduced economic activity nationwide for each tonne of abated CO2.That compared to $100 to $200 per tonne using technologies such as carbon capture.Although technology development takes longer than outright emissions caps, the difference is that the former amount to direct costs mainly to industry while the price of the policy is lost revenues to the economy as a whole.In other words, the cure is about ten times worse than the disease.“While the federal government’s proposed cap and trade system would reduce emissions within six years, the likely cuts to oil and gas production would come at a substantial cost.”.“As a result, we assume that efficiency gains will need to be supplemented by oil and gas production cuts to meet the federal government’s targets,”Conference Board of Canada.It comes after Environment Minister Steven Guilbeault announced separate caps on oil and gas and methane emissions at the UN COP28 summit last November, although nobody has quantified the economic impacts of those policy moves.Although oil production would continues to grow — at about 1.6% — it would barely be a tenth of what it would be without the policy.“As a result, we assume that efficiency gains will need to be supplemented by oil and gas production cuts to meet the federal government’s targets,” it said.“This reduced output would contribute directly to reduced emissions but would also impact federal and provincial finances.”It agrees the cap would cut emissions from the sector 22% within six years, but at “a substantial cost.” And those are costs that impact the entire Canadian economy as a whole, not just Alberta which would bear about 79% of the brunt which the Board calls a “one-time permanent shock.”For the federal government, nominal revenues are expected to be 0.8% lower due to the reduced economic activity in the oil and gas sector. But in Alberta, which relies heavily on royalties from the sector, revenue would decline by 4.5% under the baseline scenario in 2030..If those assumptions prove to be optimistic, “then the oil and gas sector production cuts would be larger and more severe than reported here.” .In Canada, total real economic growth between 2023 and 2030 slows from 15.3% to 14.3%; in Alberta, growth slows from 17.8% to 13.3%. Similarly, employment growth falls in Alberta — dropping from 15.8% to 13.6% over the same period.It notes those are just the base case numbers. If those assumptions prove to be optimistic, “then the oil and gas sector production cuts would be larger and more severe than reported here.” “While addressing the climate crisis is a high priority, it is critical that we understand the negative disruptions that will likely occur in moving quickly to achieve that objective.”
