Want to Encourage Upgrading? Why not Lower Transmission Costs!
Premier Allison Redford caused quite a stir when she said a few days ago that she doesn’t particularly care that much whether we export raw bitumen out of Alberta or upgrade it first. Most Albertans want to see more upgrading in Alberta; and Redford seems very out of step with the public on this issue. While Redford denied as much, Energy Minister Ted Morton revealed that there was a heated discussion within cabinet about the issue in November. Redford believes that decisions about value-added production should be left to the market.
What Redford seems to have missed, however, is that the high cost of overbuilding our transmission capacity (which is passed on to power consumers) is a key reason why the private sector is reluctant to invest in value-added production. Any value-added production, from upgrading to petrochemicals to meat packing, requires a lot of electricity. Overbuilding transmission lines reduces the economic incentive for companies to do their work in Alberta. If you could move your factory to Saskatchewan or the US and pay significantly lower electricity costs, wouldn’t you?
One proposed solution to the lack of value added production in Alberta has been to introduce export taxes for things like raw bitumen. Another is to subsidize certain kinds of industries, or even have the government directly involved in the business of value-added production. These approaches might achieve some of the desired objectives, but have the potential to be quite costly for Alberta tax payers and reduce the desirability of Alberta’s energy. Why not proceed with a much simpler solution which encourages value-added production like upgrading AND costs less. That solution is – Don’t overbuild the transmission grid!