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Carbon and Greenhouse Gas Legislation in Alberta

Dec 29, 2016

Alberta Climate Leadership Plan  Emissions limit on oil sands.   Reducing methane emissions from oil and gas operations.

Alberta’s approach to reducing carbon emissions was announced in the November 20, 2016  Climate Leadership Plan. This plan introduces an economy-wide price on carbon, phases out coal-fired generation and incents the development of renewable energy. Alberta’s regulations previously focused on reducing carbon emissions from industrial emitters.

Climate Leadership Plan

Key elements of the Climate Leadership Plan include:

Carbon Pricing 

  • The Climate Leadership Implementation Act implements a key cornerstone of the Climate Leadership Plan, being a carbon levy on sale, import, flaring, etc. of fuels by all consumers.

  • Beginning on January 1, 2017, a $20/tonne carbon price will be implemented across all sectors. The carbon price will rise to $30/tonne on January 1, 2018, followed by an increase in real terms, suggested to be inflation plus 2%, each year after that.

  • The levy applies throughout the fuel supply chain, including: at the point of purchase; when fuel is being imported; at the point of removal of fuel from a refinery, terminal, plant or oil or gas battery and flaring or venting of fuel.

  • Rebates will be provided to low and middle-income Albertans to offset costs associated with the carbon levy. Alberta’s small business corporate income tax rate is being reduced by one third, from 3% to 2% effective Jan 1, 2017, to help businesses adjust to the carbon levy.

Coal & Electricity

  • Coal-fired electricity will be phased out and replaced by renewable energy and natural gas-fired electricity, or by using technology to produce zero pollution, by 2030.

  • Starting in 2018, coal-fired generators will pay a $30/tonne carbon price based on an industry-wide performance standard.

  • By 2030, renewable sources like wind and solar will account for 30% of electricity generation in Alberta.

  • On November 23, 2016, Alberta announced the introduction of a capacity electricity market, which is intended to provide a reliable supply of electricity at a stable rate. In a capacity market, private power generators are paid through a mix of competitively auctioned contracts which pay their fixed capital costs and revenue from the spot electricity market. Alberta currently has an “energy-only” market, in which generators are paid for the electricity they produce based solely on the wholesale price of electricity. The new capacity market framework will be in place by 2021.

  • The Government of Alberta also entered into agreements with TransAlta, Capital Power and ATCO to end coal-fired emissions on or before December 31, 2030.

Oil Sands Emissions

  • The oil sands will be subject to a legislated emissions limit of 100 mega tonnes (Mt) per year under the Oil Sands Emissions Limit Act. Today, the oil sands emit approximately 70 Mt per year. There was previously no limit on oil sands emissions, either by facility or industry-wide.

  • Oil sands emissions will be subject to the carbon price based on results already achieved by high performing facilities.

  • Under the Oil Sands Emissions Limit Act, greenhouse gas emissions attributable to upgraders are exempt, to a combined maximum of 10 Mt/year. This exemption only applies to upgraders that complete their first year of commercial operation after December 31, 2015 or an upgrader that completed its first year of commercial operation on or before December 31, 2015 but increased its capacity after December 31, 2015.

Methane Emissions

  • Methane emissions from oil and gas operations will be reduced by 45% by 2025.

  • Methane reduction targets will be achieved through new emissions design standards for new facilities, a five-year voluntary Joint Initiative on Methane Reduction Verification and regulated mandatory standards effective in 2020 to ensure the 2025 target is met.

Financial Support for Renewables

  • The government tasked the Alberta Electric System Operator (AESO) with the development and implementation of a plan to bring new renewable electricity generation capacity to the grid by 2030, through a competitive process.

  • The AESO’s Renewable Electricity Program (REP) is intended to encourage the development of 5,000 MW of renewable electricity capacity by 2030. The REP will incent the development of renewable electricity generation series of competitions where government incentives will be awarded.

  • The first procurement under the REP will be for 400 MW and the competition will be conducted in 2017. Indexed Renewable Energy Contracts will be awarded in the first competition, which are a way of paying renewable generators who win contracts through REP for the renewable attributes that they produce. Companies will competitively bid for the all-in price they need to develop a project. From this price, the AESO will subtract the pool price and the difference is how much is paid in support. The successful bids will be awarded at the end of 2017.

The Climate Change and Emissions Management Act and the Specified Gas Emitters Regulation

Alberta’s Climate Change and Emissions Management Act (CCEMA) and its key regulation – the SGER – in place since 2007, create an intensity-based limit on industrial GHG emissions. Specifically, the CCEMA and the SGER require certain industrial emitters to reduce their emissions intensity and seek to reduce GHG emissions relative to Alberta’s GDP to 50%, or less than the province’s emissions levels in 1990. Under the SGER, large emitters – those facilities that produce more than 100,000 tonnes of CO2 equivalent emissions per year – must reduce their baseline emissions intensity from July 1, 2007 by up to 20% in each compliance period. Regulated emitters can comply with this requirement in several ways including:

  • improving operations during the applicable compliance period

  • emission offsets (earned through the removal or reduction of GHG emissions by way of an approved and non-legally required emission offset project in Alberta and verified by third-party verification procedures)

  • emission performance credits (earned by a reduction of GHG emissions lower than the emission limit in a previous compliance period and carried over into the period in which the earned credit is used)

  • fund credits paid into the Climate Change and Emissions Management Fund (which can be purchased in Alberta for $15/tonne of GHG emissions and are an alternative to the bilateral trade in emission offsets)

Alberta’s emission offset projects must fit within one of the available emission offset project protocols, such as those for biomass combustion projects and wind-powered electrical generation projects.

Fund credits paid to the fund are managed by the Climate Change and Emissions Management Corporation and are used to fund emission reduction technologies, such as the implementation of a carbon capture and storage system.

We note that the measure chosen under the CCEMA is “emissions intensity”, measuring GHG emissions per unit output. As a result, the CCEMA does not place an absolute cap on Alberta’s aggregate emissions.

On June 25, 2015, the SGER was amended by, among other things:

  • requiring large industrial emitters to reduce their emissions by 20% starting in 2017 (with an interim increase to 15% in 2016) instead of the previous 12%

  • doubling the cost of fund credits from $15/tonne of GHG emissions to $30/tonne by 2017 (with an interim increase to $20/tonne in 2016)

As detailed above, the Alberta government has indicated that it will take a broader approach to emissions regulation through carbon pricing to cover 78-90% of the province’s emissions (existing regulations currently capture less than 50% of emissions). Starting January 1, 2017, a carbon levy will be charged on all fuels that emit greenhouse gas emissions when combusted, which affect end users such as households and businesses.

In October 2016, the federal government announced a national carbon pricing floor. This pan-Canadian approach to pricing carbon will require all Canadian jurisdictions to have carbon pricing in effect by 2018, or Ottawa will impose a federal carbon tax. Alberta’s Climate Leadership Plan is intended to meet the federal requirement for an provincial carbon price by 2018.

How does this policy compare with other regions in Canada?

View infographic

To discuss how to best manage emissions compliance, contact our Climate Change team.

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