With any luck, the TIER program will be a robust and credible regulation that provides some level of policy stability beyond the next election cycle.
By Steven Andersen, Managing Director of Frostbyte Consulting, an EHSQ Alliance Affiliate
On July 9, the Government of Alberta (GoA) released a discussion document outlining detailed policy considerations for the proposed Technology Innovation and Emissions Reduction (TIER) system. While some elements of the TIER system were announced in the United Conservative Parties election platform, the recent discussion document provides further detail on the TIER system that will replace the Carbon Competitiveness Incentive Regulation (CCIR) for large greenhouse gas (GHG) emitters.
The CCIR currently applies to Alberta-based facilities that emitted 100,000 tonnes or more of greenhouse gases (GHGs) in 2003, or a subsequent year. The TIER program will be the third GHG regulation for large industrial facilities in Alberta in the last four years, highlighting the policy flux in the area of carbon pricing. Over the coming weeks, the GoA will provide several opportunities for stakeholder feedback prior to finalizing the regulation in fall 2019. TIER will come into force on Jan. 1, 2020 (see Figure 1).
Figure 1 – TIER Consultation and Development Milestones
The TIER system is similar to the previous SGER which was introduced in 2007. While the CCIR underwent a two-year regulatory development process, the timelines for developing the TIER system are accelerated given the need for regulation to be assessed for equivalency with the federal government’s Greenhouse Gas Pollution Pricing Act. The major regulatory design elements of the proposed TIER program are outlined and compared with CCIR in Table 1 below.
Table 1 - Comparison of CCIR and TIER
The TIER regulation will provide lower compliance targets for regulated facilities that have emissions intensities that are much higher than the benchmarks published under CCIR. It remains to be seen how the TIER program will treat large emitters that have an emissions intensity that is lower than published CCIR benchmarks. Will these facilities go from generating credits to having a compliance obligation? The GoA is seeking feedback on this question. One possible policy solution would be to allow facilities the option to keep the existing CCIR benchmarks if they are made worse off by the TIER program.
Regulatory Design Considerations for Oil and Gas Facilities
Under the previous government’s Climate Leadership Plan, conventional oil and gas facilities that were below the 100,000 tCO2e per year emissions threshold 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 carbon tax will likely be applied to all emission sources not regulated under the TIER (i.e. those emitting less than 100,000 tCO2e per year) beginning Jan. 1, 2020.
While the GoA is challenging the federal carbon tax in court, conventional oil and gas facilities not regulated under TIER are at risk of being subject to the federal carbon tax on every ton emitted. This will have significant competitive impacts for those facilities. As such, the GoA is seeking feedback on how the TIER system should protect EITE facilities emitting less than 100,000 tCO2e. It is possible that conventional oil and gas facilities will be permitted to opt-in to the TIER program (on a company-wide, aggregated basis). Emissions reductions would then be required relative to an assigned benchmark. This would allow facilities to avoid paying the full carbon levy on every ton emitted.
Maintaining Industry Competitiveness
Frostbyte previously has discussed why Alberta’s framework for assessing competiveness under the CCIR is insufficient. The new TIER system offers the GoA the opportunity to address some aspects of the CCIR policy design. In particular, there are three key features the GoA may look to address:
- The profit and sales test under the CCIR could be replaced with a competitiveness assessment framework that takes into consideration the ability to attract new capital investment. If a GHG pricing system results in new production activities that otherwise would have taken place in Alberta relocating to jurisdictions with a lower regulatory burden, the GHG policy has failed. The result will be that the same production activity will occur and global GHG emissions will be unchanged. Any robust assessment of sector-level competitiveness must take into account the potential for carbon leakage of production activities to other jurisdictions that do not price GHG emissions.
- As part of the competitiveness assessment, the GoA could reassess the planned benchmark tightening rate of 1 percent per year. The benchmark tightening rate should reflect available GHG reduction technology and be calibrated to reflect the competitive position, investment attractiveness, and level of climate action imposed on products exported by other jurisdictions. The proposed 1 percent tightening rate may distort the competitiveness landscape for Alberta-based production and contribute to competiveness-driven carbon leakage.
- Finally, as the GoA looks to review the TIER by 2023, the GoA may wish to replace sector-level benchmarks with external benchmarks that represent average global or North American production. This benchmark option could be made available to facilities as an alternative to the facility-specific emissions performance reduction target of 10 percent. Pointing to a global or North American benchmark demonstrates that many Alberta producers are already lower emitting than average making Alberta the global supplier of choice for low-carbon products.
Industry can expect the ever-changing GHG policy landscape to continue to evolve over the coming months. The final TIER regulations are expected to be released fall 2019. At that time, the Alberta government will formerly kick-off the process with the federal government to seek regulatory equivalency.
The Alberta government’s accelerated regulatory development timeline may create challenges for operators looking to complete an internal regulatory assessment and compliance cost forecast. There is a strong business case for investing in the expertise that can advise on a short and long-term low-cost compliance strategies such as:
- Facility screening and regulatory exposure screening for existing and future carbon pricing regulations;
- Emissions quantification, reporting, and submissions;
- Completion of technology and innovation grant applications; and
- Compliance optimization and GHG market data analytics
Operators must track and understand compliance requirements as the GHG policy landscape continues to evolve. With any luck, the TIER program will be a robust and credible regulation that provides some level of policy stability beyond the next election cycle.
Previous Articles from Frostbyte Consulting:
GHG Regulatory Update for the Oil and Gas Sector in Canada
Alberta Carbon Pricing- Competitiveness Protection Measures for Industry
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