April 29, 2011 / 11:56 AM / 6 years ago

RPT-Canada energy companies see higher costs under NDP

(Repeats story from Thursday evening with no changes to text)

* Layton calls for cap-and-trade plan, stricter GHG target

* Energy companies prefer carbon tax

* Green think-tank says oil sands output could still rise

By Jeffrey Jones

CALGARY, Alberta, April 28 (Reuters) - Some of Canada’s biggest energy companies, now facing an outside chance of a New Democratic Party government, say they could live with a carbon cap-and-trade scheme, but just not right away.

Jack Layton’s left-leaning NDP, which has surged into second place in opinion polls ahead of the May 2 election, has promised much more stringent climate and energy policies than Prime Minister Stephen Harper’s Conservatives.

Layton wants to establish an emissions cap-and-trade system for major industries including the oil sector, power generators and manufacturers, something Harper has eschewed, especially after the United States failed to set one up.

The party aims to act quickly as part of a series of measures that also includes cutting tax breaks to the oil industry, setting the stage for jurisdictional battles with right-of-center western Canadian provincial governments.

On Thursday, Layton promised to scrap what he called C$2.2 billion ($2.3 billion) in annual subsidies to the energy sector and said he did not believe imposing stricter greenhouse gas targets would drive up gasoline prices.

“I don’t accept this analysis that’s being offered that the big polluters should suddenly be justified to raise prices as we’re telling them they have to deal with the costs of pollution,” he said in Yellowknife, Northwest Territories. “If you look at their own books, they are already booking costs of a cap-and-trade system and they’re dealing with it elsewhere.”

The NDP’s ambitious goal is to cut emissions to 80 percent below 1990 levels by 2050, setting firm targets between 2015 and 2045. It would start auctioning permits this year and next.

The Conservative government’s target is 17 percent under 2005 levels by 2020.

TransAlta Corp (TA.TO) Chief Executive Steve Snyder, whose company operates the country’s largest fleet of coal-fired power plants, said carbon should have a price, and that cap-and-trade is one way to establish it.

”I would say, though, in the short term we don’t think it’s appropriate to do it soon given the state of our economy,“ Snyder said on Thursday. It’s a bit too fragile to impose that cost on ourselves and our customers.”

Like many energy executives, he said he would prefer a carbon tax to pay for new technologies for cutting emissions. The relatively small size of the country could mean high volatility in emission-trade prices early on, Snyder said.

Alberta, whose oil sands are the largest deposits of crude outside the Middle East, has been the Conservatives’ long-time power base; all but one of the electoral districts in the province are currently held by the ruling party.

An NDP government would put Ottawa and Alberta at opposite ends of the political spectrum.

The New Democrats’ surge in the polls [ID:nN27125099] [ID:nN28257883] has been so quick that major energy companies, such as Imperial Oil Ltd (IMO.TO), have not put much effort into studying the party’s energy policies. Imperial Chief Executive Bruce March said a cap-and-trade scheme would have a financial impact on his company, but not “substantial”.

“It’s a little far-fetched to think it could go immediately,” he said. “It’s a really, really complex system that you’re talking about that needs regulations, that needs standards, that needs understanding and measurement processes.”


For more stories on Canada’s election: [ID:nN29210714]


Although numbers are missing from the NDP cap-and-trade plan, a C$40 per tonne carbon price on a quarter of emissions for a steam-driven oil sands producer, could add around C$1 a barrel to production and upgrading costs, said Andrew Leach, a business professor at the University of Alberta.

“That’s really rough, really back-of-the-envelope, but it’s still a big number,” Leach said. “It is in relative terms a big increase in cost when it’s all the way across, so people would certainly worry about it.”

There are numerous unknown variables, however, he said.

Some economists and right-wing commentators see the an NDP government as a nightmare scenario for the oil industry.

Depending on oil prices and timing, though, its policies might not be enough to halt plans to double oil sands production in the next decade, others say.

Clare Demerse, director of climate change at the Pembina Institute, an environmental think-thank, said her studies show a cap-and-trade scheme would hasten companies’ research and development into technologies to cut emissions, such as carbon capture and storage, while boosting output.

“We found that oil sands production would continue to increase, even at a much more ambitious carbon price than what people are talking about today, and that Alberta would continue to lead the country in job creation, in (economic) growth,” she said.

$1=$0.95 Canadian Additional reporting by Rod Nickel and Scott Haggett; editing by Rob Wilson

Our Standards:The Thomson Reuters Trust Principles.
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