The Government of Alberta (GoA) has recently finalized the Technology Innovation and Emissions Reduction (TIER) system. The TIER system will regulate GHGs for large industrial emitters (i.e. those emitting more than 100,000 tonnes of carbon dioxide equivalent or more per year). The TIER system takes effect January 1, 2020, replacing the Carbon Competitiveness Incentive Regulation (CCIR) which was introduced by the previous NDP government and was in place from 2018-2019. This will be Alberta’s third industrial GHG pricing program in the past three years – the Specified Gas Emitters Reduction (SGER) was in place from 2007-2017. A high-level summary of Alberta history of industrial GHG programs is provided in Figure 1.
Figure 1 – A summary of industrial carbon pricing programs in Alberta
Overview of TIER
The TIER system is a hybrid of the previous SGER and CCIR systems. Table 1 below compares the major regulatory design elements of the CCIR program with the final TIER regulation [1]. As a reference, the TIER program as originally proposed in the July Discussion Document [2] is also provided.
Table 1 - Comparison of CCIR and TIER
| Design Element | CCIR | TIER Proposal | TIER Final | ||||||||||||||
| Carbon Price | $30/tCO2e | GoA is seeking input on TIER Fund Price | $30/tCO2e | ||||||||||||||
| Emissions Threshold | > 100,000 tCO2e in 2003 or later | >100,000 tCO2e in 2016 or later | |||||||||||||||
| Benchmark Years | • Average of 2013 to 2015 • Exceptions made where 2013 to 2015 are not practical or representative |
• Average of 2016 to 2018 • Consideration for circumstances where 2016 to 2018 are not representative |
• Average of 2013 to 2015 • Exceptions made where 2013 to 2015 are not practical or representative |
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| Reduction Requirements | • Electricity: “good-as-best-gas” benchmark of 0.37 tCO2e/MWh • Others: Reduction relative to sector-average product emissions intensity, top quartile, best-in-class or “other” |
• Electricity: “good-as-best-gas” benchmark of 0.37 tCO2e/MWh • Other: Reduction of 10% below facility-specific product emissions intensity • GoA may allow best-in-class facilities to retain product-level sector benchmarks |
The less stringent of a:
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| Benchmark adjustments for high Emissions-Intensive and Trade Exposed (EITE) Industries | Adjustment of reduction requirements relative to CCIR benchmark so that free allocations equal 80%, 90%, or 100% | Unknown; not specifically referenced in Discussion Document | None, but CCIR cost containment program retained | ||||||||||||||
| Reduction Tightening Rate | • 1% annually, starting in 2020 • Tightening subject to periodic EITE Industries |
• 1% annually, starting in 2021 • GoA is seeking input on if the electricity benchmark should be subject to tightening |
• 1% annually, starting in 2021 • Excludes process emissions and all HPBs |
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| Compliance Options | 1. Remit credits from facilities that outperform their benchmarks (e.g. EPCs) 2. Remit Alberta offset credits; or 3. Payment into the TIER Fund. |
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| Compliance Unit Expiry |
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| Compliance Option Usage Limits |
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GoA is seeking input on the implementation of a limit | Same as CCIR | ||||||||||||||
| Reporting Requirements |
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• Annual compliance report deadline on March 31st of the following year • No quarterly compliance reports and true-up will be required for any facility |
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| Opt-in | Eligible if emissions exceed 50,000 tCO2e per year and a benchmark exists or the facility is high EITE | Eligible if emissions exceed 10,000 tCO2e per year and a benchmark exists or the facility is high EITE | |||||||||||||||
| Treatment of cogenerated electricity | Indirect emissions associate with electricity import are subject to the regulated carbon price; cogenerated electricity reduces the volume of imported electricity; surplus electricity exported to the grid is credited | GoA is seeking feedback on the treatment of indirect emission from the import of electricity (as well as heat and hydrogen); the system will neither disincentivize cogeneration nor favor one business model over another | Same as CCIR, but no reduction tightening rate. | ||||||||||||||
For facilities already regulated under CCIR, there is no significant changes to the overarching policy design. The most material change for these facilities under TIER is the revision of the emissions intensity performance targets. Under the TIER system, facilities will automatically be subject to the performance target that yield the lesser compliance payment:
- A 10% reduction below a facility-specific baseline (FSB) representing 2013-15 emissions intensity; or
- A high performance benchmark (HPB) representing the 10% most efficient facilities from 2013-2015.
For most facilities this will result in a significant reduction in GHG compliance costs relative to CCIR. For those facilities that are materiality impacted by under the new TIER regulation, the “economic hardship” test and “cost containment relief mechanisms” that were introduced under the CCIR remain in place. We have previous detailed the cost containment provisions in a previous newsletter [3].
Conventional Oil and Gas
The inclusion of oil and gas facilities that emit less than 100,000 tonnes of carbon dioxide equivalent per year is a significant deviation from the CCIR system. Under the NDP’s Climate Leadership Plan, conventional oil and gas facilities were exempted from the provincial carbon levy until 2023. With the passing of Bill 1, the Carbon Tax Repeal Act, the legislated exemption is no longer in place. The federal government has indicated that its carbon tax will apply on emissions sources in Alberta beginning January 2020. To protect industry from the costs of the federal carbon tax, the Government of Alberta is allowing conventional oil and gas facilities with less than 100,000 tonnes CO2e per year to opt-in to the TIER system on an aggregated basis. This will allow multiple individual conventional oil and gas facilities into a single aggregate facility under TIER to streamline the reporting and compliance process. This will allow conventional oil and gas facilities to avoid paying the full federal carbon tax on every tonne emitted.
Under TIER, a conventional oil and gas facility is defined as follows:
- A facility for extracting, from an underground geological deposit or reservoir, gas, oil, or primary bitumen.
- A facility for processing gas.
- A facility for the primary processing of oil or primary bitumen.
- A facility for disposing of waste, in an underground geological formation.
- A facility for transporting, in a pipeline, gas, oil or primary bitumen (except local gas distribution systems or facilities transporting oil, gas or primary bitumen across provincial or international
- A facility for storing gas, oil or primary bitumen in the course of the gas, oil or primary bitumen being transported by a facility.
Oil and gas facilities should consider the differences between the opt in approach versus the aggregate facility approach. Some medium sized facilities (e.g. natural gas processing facilities) that were not previously subject to TIER may opt-in as an individual facility. If a facility chooses this voluntary inclusion approach, it would be treated as a large emitter and emissions reductions would then be required relative to a facility-specific benchmark. Any benefit to this approach should be weight against the operators the increase administrative costs associate with the reporting, verification, and compliance process as this would have to be complete for each individual facility rather than on an aggregated basis for multiple facilities. In addition to reporting differences, an aggregate facility has other unique considerations under the regulation:
- Only stationary fuel combustion emissions are regulated
- The annual one percent benchmark tightening rate does not apply
- Aggregate facilities are not eligible to receive support under the compliance cost containment program
Aggregate Facility Application
There is no minimum emission threshold to become part of an aggregated facility. Once an aggregate facility opts in to TIER, it will be required to reduce its emission intensity of stationary fuel combustion emissions by 10 per cent relative to the aggregate facility’s historical baseline. The GoA will also develop high performance benchmarks for the sector at a later date.
Aggregate facilities will have to submit a facility specific benchmark application before September 1, 2020. In the interim, the federal government must make formal decisions and regulatory changes to exempt TIER facilities from the carbon tax. Assuming the federal government finds that TIER meets its requirements, the federal government will provide aggregate facilities with a process to avoid the opt out of the federal carbon tax. Figure 2 outlines what this process is expected to look like.
Figure 2 – The expected process for receiving exemption from the federal carbon tax
Next Steps
Conventional oil and gas facilities should act immediately to apply to be designated as an aggregated facility. This will allow facilities to avoid application of the federal carbon tax on all combustion-related emissions. There is a strong business case for investing in the expertise that can advise on this regulatory change and compliance strategies. This includes:
- Facility screening and regulatory exposure determination
- Application for aggregated conventional oil and gas facilities
- Emissions quantification, reporting, and submissions
- Compliance optimization under the TIER program
Once the exemption certificates for the federal carbon tax are in place, operators will have some breathing room to file their benchmark applications for the 2020 compliance year. These applications are due September 1, 2020. In the interim, there is a significant amount of regulatory change for oil and gas operators to navigate. Federal carbon tax could cost operators millions of dollars every month beginning January 1, 2020, so time is of the essence.
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