As an expression of its commitment to make significant headway towards meeting Alberta’s climate change responsibilities, the newly elected NDP government in Alberta has promised to increase the cost of emitting greenhouse gases in the province by imposing more stringent emission reduction targets and increasing the costs of exceeding such targets.
While the existing regulatory framework will stay in place, the stricter standards to be phased in over the next two years will result in increased costs to Alberta’s large emitters, but may also create an opportunity for climate change leadership by Alberta as well as incentives to build emission offsetting renewable and other projects within the province.
On June 25, 2015, Alberta’s Environment Minister Shannon Phillips announced that by 2017, large emitters will be required to reduce their greenhouse gas (GHG) emissions by 20% (with an interim increase in 2016 to 15% from the current 12% reduction target). She also advised that carbon levies will double from $15 per tonne to $30 per tonne by 2017 (with an interim increase to $20 in 2016).
Alberta’s Climate Change and Emissions Management Act (CCEMA) and its key regulation, the Specified Gas Emitters Regulation, in place since 2007, creates an intensity-based limit on industrial GHG emissions by requiring certain industrial emitters to reduce their emissions intensity by 12% (with an overall goal of reducing emissions to 50% of 1990 levels by 2020). The CCEMA also provides several mechanisms by which emitters can meet their targets, including:
improvements in operations in the applicable 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 (which can currently be purchased in Alberta for $15 per 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 numerous available emission offset project protocols, including those for biomass combustion projects and wind-powered electrical generation projects. There is currently no announced change to the available compliance options for large industrial GHG emitters.
With the recent announcement, the Alberta government has sent a clear signal to large industrial emitters. Emitters’ operating costs will increase as they either invest capital in carbon reduction strategies, or purchase emission offsets or $30 fund credits to compensate for not meeting the stricter reduction targets. While costs will be imposed on large emitters, there are benefits to be reaped by the province’s fledgling renewable power generation industry, which generates the emission offsets used by large emitters to comply with the legislation. The emission offset market has an opportunity to grow now that the trading price will no longer be capped by the alternative of purchasing a $15 fund credit.
The existing regulatory framework will be extended until at least 2017, but it is unclear when the amended regulations will actually be put in force following the political announcement. Additionally, it is unclear what other changes to the existing framework may be implemented over time. The government has announced the commencement of a consultation process with public, industry, environmental groups and First Nations on climate change strategies in the province. The report resulting from such consultation, currently expected to be released by December 2015, may lead to further modifications to the existing framework – for instance, by increasing the scope of which emitters qualify as large emitters and subjecting more facilities to the regulations – or the intensity-based cap and trade system may be scrapped in favour of an alternative approach.
A number of oil sands producers and other large emitters have been anticipating the changes announced by the Alberta government for quite some time. Close attention should be paid to the results of the upcoming consultation process to identify how the climate change policy developments may create new transaction costs in the province as well as new trade or project development opportunities.