Canada: higher carbon taxes (WSJ)

CALGARY, Alberta—Canadian oil producers, pummeled by the prolonged slump in oil
prices and a string of political setbacks, now face another challenge: higher carbon taxes.

The nation’s oil-sands developers have been hit particularly hard by lower oil prices,
because they are among the most expensive oil plays in the world. Already facing
a corporate tax hike and the possibility of higher royalty payments in Alberta—
the province richest in oil sands—the industry was dealt another blow by
the Obama administration’s rejection last week of the Keystone XL pipeline,
which was designed to transport oil-sands output to Gulf Coast refineries.

All major oil-sands operators in recent weeks posted losses or steep declines in profit
for the most-recent quarter, as shrinking revenue outpaced cost cuts. Some global
giants are rethinking future development. Late last month Royal Dutch Shell PLC
shelved an 80,000-barrel-a-day project, following similar moves by
Total SA of France and Norway’sStatoil ASA.

Now, ahead of a United Nations climate-change conference in Paris starting Nov. 30,
oil companies await the details of moves—including possible new taxes on carbon
—pledged by new governments in Ottawa and Alberta to rein in greenhouse-gas
emissions, making the oil sands a global test case for climate policy.

“Canada’s years of being a less-than-enthusiastic actor on the climate-change file
 are behind us,” Prime Minister Justin Trudeau, who took office last week, said at a
news conference on Oct. 20, the day after his Liberal Party won national elections.
Mr. Trudeau promised to start working on a framework for regulating greenhouse-gas
emissions within 90 days of the Paris summit.

Within weeks of taking power in May, Alberta Premier Rachel Notley’s government
said it would double Alberta’s existing tax on carbon emissions by 2017, and has
committed to additional measures in time for the U.N. conference in Paris. Ms. Notley
is expected to release details of the proposals later this month. Alberta pioneered carbon
taxes in 2007 when it introduced a levy of 15 Canadian dollars ($11.37) a metric ton.

Oil sands are among the highest-intensity greenhouse-gas producers of any oil
fields in the world. Production from the oil sands has been growing at a steady clip in
recent years under previous provincial and federal governments that played down
climate-change risks and ignored calls from environmental groups and opposition
politicians for tougher rules on carbon-dioxide emissions.

Canada’s environment ministry says the country’s CO2 emissions have continued
to rise over the past five years and are expected to hit 781 million metric tons a year
by 2020 if no reduction measures are taken. While oil sands account for just a fraction
of that total, it is one of the fastest-growing contributors to the release of these gases.
The government’s latest estimate projects oil sands-related emissions to nearly double
to 103 million metric tons by 2020.

Mr. Trudeau’s stance is a direct challenge to Canada’s oil-sands industry, but the country’s
 oil producers are divided on how best to cope with the push for stricter environmental
regulations.

Some, including the nation’s No. 1 oil producer, Suncor Energy Inc., say they accept the
tougher rules as inevitable, and can use them to help burnish their environmental reputations.
Others, such as Canadian Natural Resources Ltd.—Canada’s biggest natural-gas producer
and a major oil-sands leaseholder—are pushing back, warning the rules would make
Canadian crude even less competitive.

The divide in the industry has surfaced in submissions by top energy companies to
a government advisory panel of experts that will recommend new climate-policy
 measures in Alberta.

“The time is right for a higher level of ambition in carbon policy stringency in Alberta,”
Suncor said in its submission to the provincial panel.

Suncor Chief Executive Steve Williams has publicly championed new taxes on retail sales of
energy such as electricity and gasoline, in addition to levies on large industrial emitters.
“Every indication is that, on the road to Paris, Canada will start to take positions” to combat
climate change, Mr. Williams told reporters late last month.

Canadian Natural said in its submission that it objects to higher carbon taxes and other
new government-mandated policies, and has called for allowing oil and gas producers
to focus on new technology to cut emissions.

Its 34-slide Power Point presentation to the Alberta panel lays out the competitive
challenges facing the industry and warns that tinkering with policies that directly
affect oil and gas producers “is very difficult and more often than not has
unintended consequences.” In a similar vein, oil-sands producer Husky Energy Inc.
 warns against making emission cuts deeper than in other countries such as the U.S.

“It would be politically suicidal for us to do a mea culpa and hang our neck out in a
way that disadvantages the industry here,” Husky CEO Asim Ghosh said on a recent
 conference call.

The main industry lobby, the Canadian Association of Petroleum Producers, is urging
regulators to offset any additional cost from climate-policy changes with a cut in
 royalties owed to Alberta’s government from oil and gas output from provincial
lands. Such a “revenue neutral” approach to reducing CO2 emissions has been
backed by multinational oil giants with exposure to Canada’s oil-sands,
such as Exxon Mobil Corp.and Shell.

—Paul Vieira contributed to this article.

Write to Chester Dawson at chester.dawson@wsj.com