Yukonomist: Carbon pricing and big Yukon emitters

Yukonomist Keith Halliday

You might have missed it, but last week Yukon tax and climate policy wonks were atwitter.

The territorial government released the latest documents on the Output-Based Pricing System (OBPS) for large industrial emitters, including options on how the money raised can be rebated to mines if they invest in decarbonizing their operations.

While no threat to the week’s Top 10 creators on TikTok, the reports did attract attention for giving an intriguing glimpse into a future where Yukon mines will need to manage their carbon as carefully as they manage their labour costs and diesel budgets today.

OBPS is part of Canada’s carbon pricing system — known popularly as the carbon tax — designed to encourage citizens and companies to reduce the emissions from their fossil fuel emissions.

The first part of this system is the fuel charge. This is what you pay, for example, on the gasoline you put in your car. It is $65 per tonne of carbon this year, or 14 cents per litre. It will go up to $170 per tonne in 2030, or about 37 cents per litre. The revenue from this program fuels the Yukon carbon rebate you receive, which was $320 for Whitehorse residents in the 2022-23 fiscal year.

As an incentive, it works like this: If you are a carbon hog, you end up paying more than you get back. If you walk to work, heat electrically and drive an electric vehicle, you pay less than what you get back.

OBPS is for large emitters and works differently than the fuel charge paid by citizens and small businesses. This is because they have to compete with rivals in countries such as the United States, where there is no carbon pricing. If a Yukon gold mine had to pay the full carbon price, investors might decide to fund one in Alaska instead of the Yukon.

The same amount of emissions would end up in the planet’s atmosphere, but all the jobs would be in Alaska.

The Yukon government backgrounder puts it this way: “Facilities operating under the OBPS pay less, on average, for their emissions compared to facilities that are subject to the regular carbon levy.”

How much less? The backgrounder shows an example. The carbon regulations for gold mines set a so-called “carbon intensity” target of 7.71 tonnes of carbon dioxide per kilogam of gold produced. If Mine #1 is off-grid and burns a lot of diesel, resulting in 10 tonnes per kilo of emissions, it has to pay for the difference: 2.29 kilos times the number of kilos of gold produced.

It can either pay the carbon tax on this, or buy credits from a mine which is doing better than the industry emissions target. Suppose Mine #2 has an emissions intensity of 5.71 tonnes per kilo. It could sell two tonnes of “credits” for each kilo it produces to Mine #1.

In effect, Mine #1 is not paying the carbon tax on all its diesel as you do at the pump. It is only paying for those above its industry intensity target. And Mine #2 may still be emitting some carbon, but gets paid as an incentive to be ahead of the curve.

Facilities emitting more than 50 kilotonnes of carbon dioxide equivalent per year have to participate in OBPS, and facilities over 10 kilotonnes have the ability to opt in. To put this in perspective, a typical Yukon family of four emits around 20 tonnes per year, assuming they use home heating fuel, own a pickup and a compact car, and make an annual long-haul vacation flight. So a mine emitting 50 kilotonnes is the equivalent to about 2500 Yukon families’ worth of emissions.

Over the last decade, only three polluting facilities in the Yukon made it into Environment Canada’s database of big emitters: Yukon Electric’s Watson Lake power plant, Minto mine and Yukon Energy’s Whitehorse Rapids diesel farm. For 2021, the most recent year available, their emissions in kilotonnes were 10.2, 14.3 and 24.9 respectively.

Since diesel power plants in the territories are exempt from OBPS, and Minto mine is closed, none of these will be on the OBPS list this year. Victoria Gold is not in the database, which ends in 2021, but it reported its 2022 emissions in its Environmental, Social and Governance Report. Because it is connected to the Yukon grid, 15 per cent of its energy comes from renewable sources such as hydropower. The company’s total emissions in 2022 were 55.4 kilotonnes, of which 1.7 kilotonnes are its share of the Yukon grid’s diesel emissions.

Victoria Gold is a modern mine whose design process included emissions modelling, according to the company’s report. In the future, they plan to “further reduce the usage of off-grid generators and continue to assess the feasibility of electric-powered mining technologies.” The mine also says a Yukon solar energy player has modeled options for on-site solar panels.

Victoria Gold is also a leader in terms of its public reporting. It discloses its emissions intensity, which was 0.37 tonnes per troy ounce of gold. That works out to 11.9 tonnes per kilo, higher than fully on-grid mines but, according to the company, “one of the lowest [greenhouse gas] intensity levels” for its peer group.

As the carbon price heads to $170 per tonne by 2030, you can see how carbon management will become increasingly crucial for Yukon mines. The government reports that mining companies behind the projects at Casino, Keno Hill and Coffee Creek commented during their consultations.

Government analysts said that there was a “broad consensus” in the comments received from the mining companies and other Yukoners that the revenues raised by OBPS should be available to mines to invest in projects that reduce emissions. This could include new renewable power projects and grid extensions.

The Yukon’s hydropower is a strategic carbon asset in this future world. Victoria Gold notes that its “connection to the electrical grid reduces reliance on diesel generators as compared to other remote mines.”

Big copper projects around the world are also touting their low-carbon power. For example, Kamoa-Kakula in the Democratic Republic of Congo highlights its hydropower. The Baimskaya project in northeastern Siberia stresses its Russian small nuclear reactors.

Many economists support market-linked incentives such as OBPS as an efficient way to incent investment in emissions reduction.

The problem, however, is that the Yukon government has not been building renewable power projects fast enough to keep up with demand. Our grid was nearly 100 per cent renewable 20 years ago, but now we see a growing fleet of rental diesels parked by Schwatka Lake. If a big new mine wanted to create some economic opportunities and open tomorrow, the grid would struggle to provide it with enough power.

As the carbon price ticks up, and carbon pricing in Alaska continues not to exist, it will become increasingly urgent for us to actually build sizable new renewable power facilities instead of just talk about it.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.