Carbon Tax and Perspectives of Oil Production in Canada

Abstract

In October 2016 Canada – the sixth world largest oil producer and the fourth largest oil exporter – ratified Paris Agreement on Climate Change and took unbinding commitments to reduce greenhouse gas emissions to 30% below 2005 levels by 2030. The federal carbon pricing backstop from the beginning of 2018 is the main policy tool for GHG emissions reduction. Canada became the second largest oil producer following Norway, who introduced GHG emissions pricing. Considering the increasing risk of mandatory global and/or regional mechanisms of payments for carbon emission introduction Canada decided to give national oil producers and consumers necessary time to get prepared to this risk in a preemptive regime. The aim of the article is to evaluate the impact of carbon pricing on projected oil production in Canada using scenario modelling of oil demand and production. We show first that carbon tax will not considerably impact oil production in Canada. Second, capacity of US oil refining to absorb expanding amounts of heavy Canadian oil as well as the lack of export infrastructure could restrict Canada’s oil production growth.