Carbon Taxes and Financial Incentives for Greenhouse Gas Emissions Reductions in Alberta’s Oil Sands

It is widely considered that the continued development and production of Alberta’s oil sands deposits is on track to be the fastest growing source of greenhouse gas (GHG) emissions in Canada over the next few decades. As recent developments suggest, failure to address the issue of GHG emissions growth might jeopardize the potential for sustained expansion of oil sands operations in Alberta. With this in mind, a computer simulation model of a steam-assisted gravity drainage (SAGD) oil sands production facility is used to investigate the financial incentives provided by the introduction of a per-unit levy on CO2 emissions – a carbon tax – to SAGD producers to reduce production-related GHG emissions. Results are obtained for a range of carbon tax rates and crude oil prices. Special attention is paid to the interactions between the carbon tax and the provisions of the royalty and tax regime applicable to oil sands development and production activities in Alberta.