Stop the Subsidies: How Albertans' Carbon Levy Dollars are Being Mismanaged

Make a mistake, or if you don’t truly understand all the moving parts imbedded in the complexities of the energy industry, it will be costly. In the end, it will be tax payers who will be required to pick up the tab for such mistakes.

In Alberta, this is the scenario we are seeing today:

1. The government implemented the Carbon Levy.
2. Industry responded by returning a number of Power Purchase Agreements (PPAs) to the Balancing Pool (a provincial agency that manages power agreements). This was done because the agreements were no longer attractive with the addition of the carbon levy.
3. With power prices at an all-time low, the Balancing Pool cannot make enough money selling the power to cover its expenses.
4. The government authorized the Balancing Pool to borrow money to cover its losses.
5. Consumers in Alberta are now facing the cost of funding the $2.6 Billion in losses projected by the Balancing Pool.

The Carbon Tax: A Global View

On the flip side of the coin, there are many business leaders who agree that the Paris Agreement, with a goal of keeping global warming below two degrees Celsius, makes good sense. If implemented with a well thought out plan, and if subsidized by governments, the agreement:

• Will provide needed certainty for planning long-term investments
• Will reduce climate-related risks
• Is akin to an insurance policy against the highly probable negative impact of climate change

The goal of the carbon tax is simple to understand, it is a carrot and stick approach to curbing pollution, supposedly at the lowest possible cost. This approach aims to assist us as we collectively work towards limiting the emission problems associated with carbon in an attempt to curb global warming. It is a lofty goal.

Here in Alberta, the Carbon Tax which was adopted means billions of dollars will be collected from consumers and industries. Does it provide certainty for long-term investment planning? Will the tax itself reduce climate-related risks? In the simplest of terms, the tax was envisioned as the stick to be used to encourage consumers to change their consumption usage patterns and to make coal based generation facilities less profitable. Basically, force the facilities to die or change.

At the same time, the government is trying to create incentives for new industries in an attempt to encourage them to invest in cleaner forms of generation. Subsidies are masked as the carrot. It is important to remember that a subsidy isn’t free money, this money is coming out of the tax payer’s pocket. What we have today is subsidies upon subsidies and a province going deeper and deeper into debt. Has anyone really added up all the dollars that this will cost us? More importantly, with billions collected and being paid out – have we actually reduced the emissions in Alberta?

We have the government giving away lightbulbs to help some consumers reduce consumption, subsidies for micro generators, capping electricity prices, and a plan to pay generators more for green power production. Additionally, government infrastructure buildings (which we all own) are going to pay a premium for operating costs if the power used comes from a solar source. It has turned into a complex spider’s web and a maze of doors. Unfortunately, this has created an opportunity for some to milk the government just like a farmer milks his cows.

Misuse of Carbon Tax Funds

Here is one example. Recently, the government announced Bill 16: An Act to Cap Regulated Electricity Rates. Under this new cap, Rural Electrification Associations (REAs) will be required to keep their Regulated Rate Option (RRO) retail prices capped at 6.8 cents/kWh. The government has claimed that the purpose of this new cap is to help consumers, like farmers in the co-op, avoid the negative impacts of future volatility in the cost of energy. And of course, the subsidy that will be provided to the REA and other RRO providers will come directly from the Carbon Tax Fund.

The problem: there are REAs who are blocking competitive market participants from selling electricity to their members (even though the competitive price is lower than the RRO cap). Why? They are already lined up at the gate to collect the free gift of money from this subsidy plan. In real terms: Here is one small example of a system gone wrong. Spot Power is offering customers within North Parkland REAs energy at 5.8 cents per kWh, but the farmers will be paying 17% more for the energy they consume, and the differential will be subsidized by all consumers in Alberta via the Carbon Levy Fund.

A question for our government, what does this do to help reduce carbon emissions? The farmer is blocked from buying electricity for lower prices than the government cap, the co-op profits, the MLA representing the district is happy, and the rest of the consumers in the province are required to pay the subsidy. This is an example of how our Carbon Levy money is being mismanaged. Our political leaders have lost sight of the goal; to curb global warming! Pork Barreling Politics is the problem and protecting the franchise of who voted for the party in power is the goal.

A Recommendation for Change

Our government lucked into a pot full of money called the Carbon Levy. Billions. Why not simply use the new-found wealth collected and invest consumers money into hard assets?

Stop the subsidy game and build wind, thermal, hydro, and solar generation farms on crown land as a mass deployment of government owned and regulated generation operations. Turn the facilities over to the Balancing Pool to manage, and once the facilities are built, turn the new generation units over to the industry through the proven concept of selling off the PPA’s to operators. Turn losing PPAs into a new profits for the citizens of Alberta. Leverage every dollar collected by the new carbon tax, take advantage of economies of scale and immediately add new generation to the province.

We work hard for a buck and it is shameful that we are seeing only a fraction of the dollar actually being invested into the future of the province. A message to our government: Stop the subsidies. Cut out the pork-barreling and gifting money to vested interest groups and put our money to work. Every dollar collected from the Carbon Tax should be invested in building infrastructure, services and employment.

It is not too late to re-think the path forward.