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 supportingthe Trans Mountain pipeline expansion.

Finance Minister Bill Morneau says his government willcover 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 31deadline to removepolitical uncertaintyfrom 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 about600,000 barrels per day.

A year out from a provincial election in Alberta, Rachel Notley's NDPistrailing 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 onJan. 1, 2018. It's set to goup to $50 a tonne by 2022 in line with the federalPan Canadian Framework on Clean Growth and Climate Change that all provinces except Saskatchewan signed on to although Notleysaidin March she would pause the incremental increasesuntil the Trans Mountain project was approved.

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

So much so that Notley saysthe federal government wouldn't be willing to bankroll Trans Mountainif 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 factthat 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 surveysuggests,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 taxactually comes from outside the energy industry, withthe biggest players in Alberta's oilpatchsupporting a price on carbonas a way of tackling climate change.

Opposing carbon tax a mistake

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

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

According toMcConaghy,most of the bluster about repealing Alberta's carbon tax hasto do with politics rather thanpolicy,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 appliedfor intervener status to support the government of Saskatchewan's constitutional challenge against the federal carbon tax.

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

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

Even ifKenneyfails to get rid of carbon pricing in Alberta, there is a chance that by trying tohe could alienate the federal government, which isone 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. andAlberta.

"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.