An end to Alberta’s stigmatizing inertia on climate change policy was announced yesterday.  The new Minister of Environment and Parks, Shannon Phillips, announced that the Specified Gas Emitters Regulation (“SGER”) will be renewed for a period of two years with significant amendments she described as “interim measures” until such time as an advisory panel chaired by Dr. Andrew Leach, a professor at the University of Alberta, can undertake a comprehensive review of the province’s climate change policy and provide advice on a permanent set of measures. The review is intended to include broad consultation with the public, industry, First Nations, academia, and government, but must be concluded within three months as Premier Notley has indicated that she wants the report in hand in time for the Government to act upon it and make a further policy announcement prior to the meeting of the Conference of the Parties to the UN Framework Convention on Climate Change in Paris in December 2015.

Primer on the SGER

The SGER was passed pursuant to the Climate Change and Emissions Management Act and came into force in 2007. It has never been amended and was initially set to expire in September 2014, but was twice extended by the Progressive Conservatives. Its current expiry date is June 30, 2015, thus facilitating this opportunity for the newly-minted NDP Government to address a policy matter of extraordinary importance to Alberta’s energy-driven economy.

The SGER established an intensity-based approach to the regulation of carbon emissions. Large emitters (i.e. 100,000 tC02e/year) are required to reduce their emissions intensity by 12% below their established baseline emissions, calculated with reference to the intensity of carbon emissions per unit of production (e.g. carbon emissions per barrel of oil). In other words, large emitters must improve their emissions efficiency, but there is no absolute cap on their emissions, with the result that their absolute emissions can increase and they will remain compliant as long as there is increased economic production with the increased emissions. Compliance could be achieved in four manners: (i) actual reductions to on-site emissions; (ii) the purchase of Alberta-based emissions offsets; (iii) the purchase (or use of banked) emissions performance credits (“EPCs”); and/or (iv) paying a levy of $15/tC02e into the Climate Change and Emissions Management Fund (“CCEM Fund”).    

What has changed?

The amendments announced by Minister Phillips touch on two aspects of the SGER. Firstly, the intensity reduction requirements have increased. By January 1, 2016, large emitters will have to reduce emissions intensity by 15%, which will increase to 20% by January 1, 2017. Secondly, the carbon levy will be increased from $15/tC02e to $20 for 2016 and $30 for 2017. 

What has not changed?

The coverage of the SGER has not changed. That is, it remains the case that only those emitting 100,000 tC02e per year or more are captured by the regulation, leaving approximately 50% of Alberta’s total emissions untouched by regulation. Additionally, no limits have been placed on the extent to which large emitters can meet their compliance requirements through reliance upon offsets, EPCs or payments into the CCEM Fund. Most significantly, the intensity-based approach remains, with no absolute cap on total emissions.

What to expect next

What can be gleaned from the amendments made (and perhaps more significantly from those not made)? The SGER is not long for the world. Minister Phillips did not mince words, stating that even with the amendments to the SGER, “no other jurisdiction and no energy market is going to accept that this constitutes an effective climate change policy.”

The Government has done only a minimal amount of tinkering with SGER’s lowest hanging fruit. Indeed, the amendments appear to reflect only those changes that we would have eventually seen from the PCs and they are clearly interim measures only. The Government also seems to be taking a staged approach that is balanced and mindful of the current state of the economy in Alberta.  

Dr. Leach has been tasked with preparing a discussion paper that will “inform the development of a comprehensive new provincial strategy that demonstrates to the world Alberta’s commitment to address climate change.” The discussion will not take place within the SGER construct and will consider all sectors, not just petroleum industry. Dr. Leach will surely be looking at BC’s experience with a broad-based carbon tax, as well as Ontario’s recent announcement that it is joining Quebec and California’s cap and trade system (that’s where we’re all heading eventually, in my view, though I suspect the hard caps that a cap and trade policy entails are not on the horizon for Alberta in the near term). We can also expect announcements on renewable energy initiatives and the hastened phasing out of Alberta’s continued significant reliance upon coal-fired generation.