NB Power could face $18M carbon tax bill as Ottawa toughens approach

Tougher federal treatment of generating stations that burn coal and petroleum coke, quietly being proposed for next January, could mean an $18 million carbon tax bill for NB Power in 2020 — up to six times more than it's paying this year.

It's an amount the utility has not budgeted for and could require additional rate increases to finance.

NB Power, which is already projecting little profit for itself over the next four years without factoring in carbon taxes, says it is waiting for more information before it plans for the expense, including whether the Blaine Higgs government can work out a deal on carbon pricing with Ottawa to avoid or mitigate the increase.  

"The current plan does not have anything meaningful in there for that," NB Power chairman Ed Barrett told New Brunswick MLAs earlier this month about how the utility plans to deal with the cost of its greenhouse gas emissions.

"It's uncertain to us the posture that the shareholder [Higgs government] is going to take with respect to carbon tax in general. When they know, we'd sure like to know."

Utility expected low tax bill

Despite being the largest greenhouse gas producer in Atlantic Canada, NB Power's federal carbon tax bill for 2019 is expected to be low — about $3 million — thanks to generous but controversial credits offered to coal and petroleum coke-fired generating stations, like NB Power's plant in Belledune.

According to the federal Department of Environment and Climate Change, Belledune emits 838 tonnes of greenhouse gases for every gigawatt hour, equal to one million kilowatt hours, of electricity it produces.  

Under currently proposed rules for 2019 carbon taxes on plants fuelled by coal or petroleum coke are exempt from paying tax on the first 800 tonnes of emissions per gigawatt hour of electricity they produce — up to 95 per cent of the emissions in Belledune's case.

That favourable treatment caused controversy in Parliament and elsewhere when first reported in October, and in December the federal government proposed revised and much tougher treatment for power plants fired by coal or petroleum coke. The change would start next January, after this fall's federal election.

The new plan is to exempt only the first 650 tonnes of greenhouse gas emissions per gigawatt hour of electricity produced in 2020 and tighten the exemption every year until it reaches 370 tonnes in 2030.   

​Belledune produces between 3,000 and 3,600 gigawatt hours of electricity per year and in 2020 will have to pay tax on an extra 500,000 tonnes of emissions at the rate of $30 per tonne. 

That will increase NB Power's carbon tax bill 500 per cent, from about $3 million in 2019 to $18 million in 2020, if production levels at Belledune are not cut.

Utility struggling financially

NB Power has applied for an average 2.5 per cent rate increase for April 1, including a 2.9 per cent increase on residential customers.

Its application noted the amounts include no provision to deal with carbon costs as it waits for the federal government to finalize its proposed treatment of industry and for the province to announce any possible alternative that will be acceptable to Ottawa.

"While the federal government has currently rejected the government of New Brunswick's carbon pricing plan, the government of New Brunswick continues to develop a carbon pricing plan that  would meet federal guidelines," says the utility's application.

"Additional uncertainty around carbon pricing  exists due to the lack of published final regulations. These issues need to be fully understood to budget any carbon expense. As such, NB Power has not included a carbon cost in the budget."

NB Power is already in a financial bind and is projecting low profitability and a $108 million increase in its debt over the next four years, without any money set aside to pay carbon costs.

Provinces that develop an alternative carbon pricing plan acceptable to Ottawa can escape federal taxes but so far, New Brunswick proposals have failed to win federal support.

The province has joined a court challenge to the federal program, and in December announced it was working on a "made-in-New Brunswick" treatment for large emitters to avoid federal taxes. So far, that plan has not been revealed or accepted.

Ottawa is still finalizing carbon tax exemption levels for industry, which are expected mid-year. Nevertheless, carbon taxes on industrial emitters took effect in the province on Jan. 1 at a rate of $20 per tonne on non exempt emissions.

That amount grows by $10 per tonne every Jan. 1, until reaching $50 per tonne in 2022.