Alberta is not in the inner ring of Harper’s carbon tax. Now it’s in trouble

Climate change promises boost to poor as high prices stoke environmental controversy over oilsands sector

Leaders in Alberta are unhappy about this: a 21% increase in the province’s budget deficit to $5.4bn.

Budget forecasts suggest the shortfall will only worsen next year, before improving. By 2020 the deficit will be $2.6bn, the government says. It reckons it can dip into the $2.3bn contingency fund to keep the deficit within three years.

The province’s strong energy sector helped fuel the optimism. Its economy grew 1.7% in the quarter, five times faster than the rest of Canada. That didn’t last.

Alberta surprises analysts with budget deficit of $5.4bn Read more

A slump in oil prices sent Alberta’s economy down. It shrank 0.5% between August and September, after growing a credit-wrecking 1.1% in the previous quarter.

Alberta stands out in the energy industry. It’s only fifth in production, but second in concentration. Its crude and bitumen make up a quarter of Canada’s oil output. Its production now starts to cool off with lower prices.

With no domestic market for its oil, Alberta is a net exporter. With a share of Canada’s $1.1tn oil reserves, though, the revenues can be highly volatile.

Big enough to hit oil production, disputes over carbon emissions can flare. Alberta was not in the inner ring of former prime minister Stephen Harper’s punitive carbon tax. And Joe Trudeau’s Liberals want the federal government to replace them.

Countries pursuing a more ambitious climate action agenda are likely to renew their interest in Alberta. These include California and the United Kingdom. Both will be interested in keeping the world’s oil supplies intact.

All is not gloom in Alberta. Its economy in coming years will revolve around renewables and its diversification drive.

Gasoline use is falling as consumers build up their energy savings. The oil and gas sector will have to be more disciplined. With bigger loan guarantees, it may borrow at rates that are half the federal government’s. But the promise of cash injections as part of the federal investment bank ought to underpin the market.

That will be a sweetener, for better or worse. The province’s plan can get a good start if the cash injection – and the oil recovery from the glut – goes far enough to prevent unemployment growing, meaning more tax revenues.

Unless the federal stimulus comes good, Albertans face an uncertain rainy day. It’s another sign they must make more progress on addressing climate change.

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