Why killing Alberta's carbon tax could kill Kinder Morgan pipeline

The federal government announced last week it's willing to put its money where its mouth has long been in supporting the Trans Mountain pipeline expansion.

Finance Minister Bill Morneau says his government will cover Kinder Morgan or any other company's losses connected to political delays to the project.

Morneau says talks are ongoing with Kinder Morgan ahead of the company's self-imposed May 31 deadline to remove political uncertainty from the $7.4-billion expansion project.

But that's not the only deadline looming over the project, which would twin an existing pipeline leading from the Alberta oilsands to the west coast, increasing capacity by about 600,000 barrels per day.

A year out from a provincial election in Alberta, Rachel Notley's NDP is trailing badly in the polls and could be one and done as a government this time next year.

After the next election

The United Conservative Party could be calling the shots in Alberta by then, and its leader, Jason Kenney, has been clear that his first order of business would be to repeal what he calls the NDP's "job-killing carbon tax."

Alberta introduced a $20-per-tonne tax on carbon dioxide emissions on Jan. 1, 2017, which increased to $30 a tonne on Jan. 1, 2018. It's set to go up to $50 a tonne by 2022 in line with the federal Pan Canadian Framework on Clean Growth and Climate Change that all provinces except Saskatchewan signed on to — although Notley said in March she would pause the incremental increases until the Trans Mountain project was approved.

The federal government has consistently connected the carbon tax policy to its support for the Trans Mountain pipeline expansion.

So much so that Notley says the federal government wouldn't be willing to bankroll Trans Mountain if the carbon tax wasn't in place.

"They understand that it's all integrated, and it's part of this dual approach," Notley said after the Morneau announcement on Wednesday.

That begs the question: what could repealing Alberta's carbon tax mean for federal support of the Trans Mountain pipeline expansion?

What happens to federal support?

Kent Fellows, an economist with the University of Calgary's School of Public Policy believes federal support for the expansion could "evaporate" if Alberta's carbon tax was removed from the equation.

That could present a real problem for Kinder Morgan, since the project isn't scheduled to be completed until 2020, a year after Alberta's next provincial election.

If it strikes a deal with Kinder Morgan, the federal government would honour it, but that would just mean paying the company for any losses incurred because of political delays caused by B.C.'s opposition to the project. It wouldn't mean the feds would continue pushing the project through the fraught political process.

Fellows says the pipeline has a better chance of being built with strong federal support, something he believes will be greatly diminished if Alberta puts the brakes on carbon pricing.

"I think if you are Justin Trudeau and you are at the federal level, you have a real hard time continuing to support the pipeline," he said.

Federal support for the project also may reflect the fact that a large majority of Canadians are also in favour of it. At the same time, two-thirds of them want the government to do something to curb carbon emissions.

But in Alberta, opposing the carbon tax makes sense politically given that, as a recent survey suggests, two-thirds of Albertans are against it.

That's a lot of voters committed to scrapping the tax, even if it may actually diminish the chances of building a much-needed pipeline to tidewater.

Ironically, much of the hostility toward the carbon tax actually comes from outside the energy industry, with the biggest players in Alberta's oilpatch supporting a price on carbon as a way of tackling climate change.

Opposing carbon tax a mistake

Former TransCanada executive Dennis McConaghy says that opposing carbon pricing is a mistake. "Canadian conservatives are out to lunch in terms of their hostility to carbon pricing."

McConaghy says Kinder Morgan would expect assurances from the federal government that the offer to cover losses related to political delays would be available no matter what happens with Alberta's carbon tax.

According to McConaghy, most of the bluster about repealing Alberta's carbon tax has to do with politics rather than policy, since the federal government has said it will impose a price on carbon on provinces that don't do it themselves.

"Jason Kenney is not going to stop there being a carbon tax in Alberta and he knows it," he said.

But Kenney's United Conservative Party is already helping to challenge the federal government's right to impose that tax on the provinces. It has applied for intervener status to support the government of Saskatchewan's constitutional challenge against the federal carbon tax.

However, Kenney also says he isn't against all pricing on carbon, just the carbon tax imposed by the NDP on anyone who burns fossil fuels in Alberta.

Kenney says he supports taxing large industrial emitters of carbon, something Alberta has done for more than a decade.

Even if Kenney fails to get rid of carbon pricing in Alberta, there is a chance that by trying to he could alienate the federal government, which is one of the province's biggest allies on the pipeline file.

Mount Royal University political scientist Keith Brownsey says the federal government would no longer fight for the project if it was being opposed by the governments of both B.C. and Alberta.

"What incentive would there be for the federal Liberals to support the TMX at that point, absolutely none," Brownsey said.

Brownsey says that could ultimately kill the project. 

"It would end the Kinder Morgan expansion. I don't think there is any question about that."

In the curious world of pipeline politics, Alberta's carbon tax on fuel could be the key to getting more of the province's oil to market.