Over the past 18 months we have seen a rapidly changing law and policy landscape for climate change mitigation in Alberta.
The Climate Leadership Plan
Changes began in November 2015 with the release of the long anticipated Climate Leadership Plan (the “Plan”). The Plan, based upon recommendations made in the Climate Change Advisory Panel Report (the “Report”), focuses on four key areas:
- implementing a new carbon price on greenhouse gas (GHG) pollution;
- phasing out coal-generated electricity and developing more renewable energy;
- legislating an oil sands emissions limit; and
- employing a new methane emissions reduction plan.
As described in the Report, carbon pricing forms the “backbone of [the] proposed architecture”. The carbon levy is to be applied across all sectors and its revenue will be used for defined purposes designed to reduce GHG pollution.
It would be remiss to discuss the changes in Alberta’s legal and policy landscape without referencing at least some of the significant international and national climate change developments.
Another key element of the Plan is to phase out coal-fired electrical generation by 2030. The goal is to replace two-thirds of this electrical generation capacity with renewable energy and one-third with natural gas. In the meantime, coal-fired generators will be subject to the carbon levy on emissions above those created by Alberta’s cleanest natural gas-fired plant producing the same amount of electricity.
The Plan includes a transition to performance-based standards and a legislated limit to oil sands emissions. This means the carbon levy will be applied to oil sands facilities based upon results already achieved by high performing facilities. Further, an annual limit of 100 Mt from the oil sands sector will be imposed by legislation.
The Plan seeks by 2025 to reduce methane emissions from oil and gas operations by 45%. It applies new emissions design standards to new oil and gas operations, and addresses emissions arising from venting and flaring and fugitive emissions from existing facilities.
Carbon Levy
The Climate Leadership Act came into force on January 1, 2017 and enables the carbon levy. The current carbon price is $20 per tonne and will increase to $30 per tonne in January 2018.
The Climate Leadership Regulation provides details on the implementation and application of the carbon levy. The Regulation specifies which activities are subject to the carbon levy and at what stages of the fuel supply chain the carbon levy is payable. This includes locomotive diesel, aviation gas and jet fuel, and raw gas and natural gas. The determination of the amount of fuel on which the carbon levy is payable must be done using a method acceptable to the Minister.
The Regulation indicates the following fuels are exempt from the carbon levy:
- A consumer is exempt from paying a carbon levy on fuel used in the operation of a specified gas emitter if the emissions from the fuel are direct emissions as defined in the Specified Gas Emitters Regulation (only if marked fuel is used);
- A consumer is exempt from paying the carbon levy on fuel used in a production process before 2023 if the fuel is not flared or vented (only if marked fuel is used); and
- A consumer is exempt from paying the carbon levy on fuel that is flared or vented in a production process before 2023.
The goal of the Renewable Electricity Program is to increase the amount of renewable electricity generation on Alberta’s grid without jeopardizing the performance and reliability of Alberta’s electric system. The Regulation provides details on the carbon levy rebates under the Act. It also sets out requirements for the remittance, refund and recovery of the carbon levy along with administrative matters such as record-keeping and reporting.
Coal Phase-Out & the Renewable Electricity Act
The Renewable Electricity Act is the legislative vehicle for promoting renewable electricity generation in Alberta. The Act sets a target that at least 30% of electricity produced in Alberta will be from renewable energy sources by 2030. A renewable energy source is defined as:
an energy resource that occurs naturally and that can be replenished or renewed within a human lifetime, including, but not limited to:
- moving water;
- wind;
- heat from the earth;
- sunlight; and
- sustainable biomass.
In conjunction with this Act, the government released and accepted the Recommendations on Renewable Electricity Program prepared by the Alberta Electric System Operator (AESO). The AESO made recommendations on:
- the Renewable Electricity Program (REP) design;
- the form and content of the competitive process that will be used to implement the Program; and
- key features of the first competition, including a payment mechanism.
The Climate Leadership Act came into force on January 1, 2017 and enables the carbon levy. The current carbon price is $20 per tonne and will increase to $30 per tonne in January 2018.
The goal of the Renewable Electricity Program is to increase the amount of renewable electricity generation on Alberta’s grid without jeopardizing the performance and reliability of Alberta’s electric system. The AESO recommends an Indexed Renewable Energy Credit (REC) as the payment method for this competitive process. The AESO explains the Indexed REC at page 16:
… a winning bidder is paid a $/MWh payment for renewable attributes produced as follows:
- Winning bidder bids a price that is, in essence, its lowest acceptable cost for the renewable project the bidder plans to advance;
- The dollar value of support paid to the winning bidder for renewable attributes produced by that project is not the bid price. It is calculated by subtracting a reference price12 (e.g. the pool price) from the bid price.
In other words, if the reference price (i.e. the pool price for electricity) falls below the bid price, the government provides a support payment for the difference. If the reference price increases above the bid price, the operator pays the difference to the government. The Indexed REC is designed to minimize the program costs for Alberta consumers and to avoid windfalls for operators while still creating an attractive market for investors.
Oil Sands Emissions Limit
The Oil Sands Emissions Limit Act places an annual 100 MT emissions limit on the oil sands industry. Several aspects of the oil sands industry will not be considered in calculating whether or not this limit has been reached. These include:
- co-generation emissions attributable to the electric energy portion of the total energy generated;
- upgrading emissions attributable to upgraders that complete their first year of commercial operation after December 31, 2015 or attributable to the increased capacity resulting from the expansion (after December 31, 2015) of upgraders that complete their first year of commercial operation on or before December 31, 2015;
- prescribed experimental schemes;
- prescribed primary production; and
- prescribed enhanced recovery operations.
There are no legislative definitions of experimental schemes, primary production, and enhanced recovery operations. These will come in a later regulation.
Another key element of the Plan is to phase out coal-fired electrical generation by 2030. The Act grants the provincial cabinet authority to make regulations “establishing and governing mechanisms to keep greenhouse gas emissions from oil sands within the limit”. This includes prescribing thresholds (including limits, triggers, ranges, measures or indices) and establishing a system of greenhouse gas emissions allowances for purchase, auction, trade and retirement.
Other Developments
It would be remiss to discuss the changes in Alberta’s legal and policy landscape without referencing at least some of the significant international and national climate change developments.
The historic Paris Agreement is the latest international action flowing from the United Nations Framework Convention of Climate Change (the “UNFCCC”). The Paris Agreement is designed to enhance the implementation of the UNFCCC by strengthening the global response to climate change. Among other things, the parties agreed to:
- hold the increase in the global average temperature to well below 2.0oC with efforts to limit the change to 1.5oC;
- increase the ability to adapt to adverse impacts of climate change and foster climate resilience and low GHG emissions development; and
- make finance flows consistent with a pathway to low GHG emissions and climate resilient development.
Canada is among the 147 countries that have ratified the Paris Agreement.
In order to meet its climate change mitigation commitments, the Government of Canada issued the Pan-Canadian Framework which establishes benchmarks for a national price on carbon including:
- All jurisdictions will have carbon pricing by 2018;
- Carbon pricing must be based on GHG emissions and applied to a common and broad set of sources (at a minimum, carbon pricing should apply to substantively the same sources as B.C.’s carbon tax);
- Jurisdictions must implement either (i) an explicit price-based system or (ii) a cap-and-trade system;
- If a jurisdiction adopts an explicit price-based system, the carbon price should start at a minimum of $10 per tonne in 2018, and rise by $10 per year to $50 per tonne in 2022;
- If a jurisdiction adopts a cap-and-trade system, there must be a (i) 2030 emissions reduction target equal to or greater than Canada’s 30% reduction target (ii) declining annual caps to at least 2022 that correspond to the projected emissions reductions resulting from the carbon price that year in price-based systems (at a minimum);
- The federal government will introduce an explicit price-based carbon pricing systems to apply in jurisdictions that do not meet the benchmarks; and
- Each jurisdiction is required to provide regular, transparent and verifiable reports on the outcomes and impacts of carbon pricing policies.
The Government of Canada recently released its Technical Paper on the Federal Carbon Pricing Backstop which proposes the carbon pricing scheme applicable to those jurisdictions that do not meet the carbon pricing benchmark set in the Pan-Canadian Framework.
As can be seen, the climate change legal and policy landscape has undergone significant changes in the past 18 months. More changes can be expected, on both the provincial and federal front, designed to further mitigate GHG emissions and to deal with the impact of climate change.
About Brenda Heelan Powell
