The Government of Alberta yesterday released the Technology Innovation and Emissions Reduction Implementation Act, 2019 (Bill 19), which, if passed, will amend and rename the Climate Change and Emissions Management Act. The new legislation will be called the Emissions Management and Climate Resilience Act (EMCRA) and will pave the way for money in the Climate Change and Emissions Management Fund (to be renamed the Technology Innovation and Emissions Reduction Fund) to be transferred into the province’s General Revenue Fund and used for purposes broader than climate change. The first reading of Bill 19 in the Alberta legislature was accompanied today by the release of the Technology Innovation and Emissions Reduction Regulation (TIER), which will replace the province’s Carbon Competitiveness Incentive Regulation (CCIR) on January 1, 2020. A brief summary of TIER follows.
TIER is the outcome of a Premier Jason Kenney electoral promise to eliminate the fuel tax and reform Alberta’s approach to carbon pricing. TIER is also clearly motivated and informed by the ongoing federal-provincial jurisdictional disputes that are being played out in the Court of Appeal and the Supreme Court of Canada.
TIER’s operational elements appear to be an attempt to assuage small oil and gas companies with a more flexible carbon compliance obligation that is reflective of the 2007 Specified Gas Emissions Regulation (SGER) in that: (i) there are no mandatory emission reduction obligations for facilities emitting less than 100,000 tonnes CO2e; and (ii) facilities are required to comply with the least stringent of: (a) a facility specific emissions benchmark and (b) a high performance product benchmark. Alberta estimates that the TIER will result in $330m of avoided costs when compared to CCIR and will result in a comparable amount of emission reductions. To date, it is unclear whether TIER will be deemed equivalent with the industrial emitter carbon pricing system (OBPS) under federal Greenhouse Gas Pollution Pricing Act and whether the federal end-use oil and gas levy will apply to Alberta.
The Government of Alberta indicates that TIER is intended to (i) reduce greenhouse gas (GHG) emissions; (ii) reassure investors; (iii) safeguard Alberta’s industry competitiveness vis-à-vis industry in jurisdictions without emissions legislation; (iv) maintain provisional jurisdiction over the regulation and pricing of emissions and industrial climate change regulations in Alberta [emphasis added]; and (v) avoid the federal Output-Based Pricing System (OBPS) in Alberta and protect conventional oil and gas from the federal fuel charge.
Equivalence with the federal GHG program. We understand that the Province is engaged in positive discussions with the federal government in order to determine whether TIER will be deemed equivalent to the federal system and thereby prevent the federal carbon tax and OBPS from applying in Alberta. The final stringency and equivalence decisions are anticipated to be made before the end of fall 2019.
Compliance threshold and obligation. Facilities emitting greater than 100,000 tonnes CO2e will be required, under TIER, to comply with the least stringent of:
(a) stated high performance benchmark (HPB), a product-specific high performance benchmark reflecting emissions intensity of high performance in a sector (calculated as average emission intensity of top 10% of facilities); and
(b) facility-specific benchmark (FSB) of 90% of historical emissions intensity from effectively a 3 year rolling base line (with a 1% reduction per year starting in 2021).
Electricity producers will be subject to a good-as-best-gas approach of an emission rate better than 370 kg CO2e per MWh, and will not otherwise be required to comply with the HPB or the FSB.
Opt-in. Conventional oil and gas facilities emitting less than 100,000 will have the ability to opt in to the TIER program or aggregate facilities for the purpose of reporting and monitoring.
Compliance options and flexibility. Facilities exceeding the applicable FSB or HPB will have the option of: (i) reducing emissions intensity; (ii) purchasing environmental performance credits* (EPCs) from facilities with emissions below the applicable benchmark; (iii) purchasing compliant emission offsets* (Offsets); and (iv) paying $30 per tonne of excess CO2e into a technology fund. TIER also provides for “compliance cost containment” if facilities are facing economic hardship (defined as compliance costs exceeding 3% of sales or 10% of profit at a facility. There is no estimate on the overall impact that this will have on GHG emissions in Alberta.
Market continuity. We understand that the government is of the view that the market in existing EPCs and Offsets will not be harmed by TIER.