Don Newman

January 28, 2022

One of the most eagerly awaited events of the Parliamentary session which opens on Monday will be the presentation of the 2022 budget of the federal government. Overstuffed with debt after fighting COVID-19 for two years, inflation now running over 4 percent and housing increasingly unaffordable for many people, investors, markets and Canadians just hoping to get by will be looking to see what the Liberal government has planned going forward.

But in addition to dealing with the headline problems of the day, this budget could sew the seeds of potential problems straining the unity of the country. In fact the coming  budget could be controversial in a way not seen in Canada since the federal budget of October 1980.

That was the budget of the National Energy Program. It drove relations between the feds and Alberta so low the provincial government began gradually restricting shipments of oil from the province to refineries in Eastern Canada. It took months of negotiations and increasing economic pressure on both sides to reach a compromise. But since the NEPwas introduced – and then withdrawn – 42 years ago, relations between Alberta specifically and the prairie provinces generally have been strained whenever the Liberals are in power in Ottawa – and sometimes even when they are not.

Relations between Ottawa and Alberta are now  strained again. The  Liberal government is doubling down on its commitment to dramatic cuts in GHG  emissions by 2030, and for Canada to be net-zero in emissions by 2050, as agreed at last November’s COP-26 conference in Glasgow. The traditional way to influence corporate and public behaviour is through economic incentives to prompt whatever a government wants to accomplish, and taxes and lack of economic support for things it wants to discourage.

That is why the energy sector – and particularly companies operating in the oil sands in Northern Alberta – will be watching closely the l budget that will be brought down in Ottawa later this spring.

Decisions taken by Deputy Prime Minister and Finance Minister Chrystia Freeland will have a big impact on the oil sands and Canada’s plans for transitioning to a net zero, low emission, green economy. That is because one of the features in the budget is expected to be a federal investment tax credit for companies spending on carbon capture and storage. The process is being used in Alberta and Saskatchewan, but is considered still in the development phase.

It features capturing the carbon emitted from oil wells – and particularly from upgraders used to convert oil sands into bitumen – and then forcefully injecting the carbon deep underground into secure holding areas from which it cannot escape into the atmosphere and contribute to warming the planet.

Carbon is also emitted from industrial sectors, like cement and steelmaking.  Carbon capture and storage can also be used to reduce greenhouse gas emissions from those activities, and they would be among the beneficiaries of the investment tax credit now being considered.

Decisions taken by Deputy Prime Minister and Finance Minister Chrystia Freeland will have a big impact on the oil sands and Canada’s plans for transitioning to a net zero, low emission, green economy.

In fact, some people say those kinds of companies should be the only beneficiaries. A group of scientists and academics has written Freeland calling for the investment tax credit to be limited to companies not directly in the energy sector. They argue that extending the credit would amount to a subsidy for oil companies to keep producing their products and the carbon that comes with them, exacerbating rather than  combatting the problem of climate change and global warming.

If that advice were accepted it would have a major, disruptive effect on reducing carbon from producers in the oil sands. The biggest Canadian oil sands producers, including Suncor and Cenovus, announced last year they would cooperate in an effort to get to net zero emissions by 2050. One of the main ways they plan to do that is by sharing one or more new carbon capture and storage facilities nearer to their production sites. Other companies in the  oil sands are seeking ways to cooperate with the majors.

But making oil sands operators ineligible for the investment tax credit would be a blow to the companies’ plans. It would be seen as a direct attack on the economy of Alberta and the energy industry. It would trigger anger and rally support for the fledgling Maverick Party, which argues Western Canada would be better leaving the rest of the country and going it alone. It would trigger a reaction not unlike the NEP 42 years ago. It would create anger and unrest on a scale not seen in recent memory in this country.

That’s  why that while there’s  a lot riding on every federal budget,  there could be more riding on this one  than on most.

Contributing Writer and columnist Don Newman, an Officer of the Order of Canada and Lifetime Member of the Parliamentary Press Gallery, is Executive Vice President of Rubicon Strategy in Ottawa.