TIER regulations update Alberta’s approach to GHG emissions, but don’t go far enough

Update from December 6, 2019

The Government of Canada announced that Alberta’s Technology Innovation and Emissions Reduction (TIER) regulations meet the stringency requirements for carbon pollution pricing systems, for the emission sources they cover. This decision means that large emitters in Alberta will not be subject to a fuel charge (commonly referred to as a federal “backstop”) provided they register as an emitter with Environment and Climate Change Canada and the Canada Revenue Agency.

The United Conservative Party's Plan: TIER

The centrepiece of the United Conservative Party’s climate change strategy was tabled in the legislature, as Bill 19, the Technology Innovation and Emissions Reduction Implementation Act (TIER), on October 29, 2019.

The TIER regulation will continue Alberta’s 12 plus year history of pricing carbon for large emitters. Yes, Alberta had a targeted price on carbon as early as 2007, even before British Columbia started its broad-based carbon tax in 2008. While encouraging large emitters to adopt technologies that allow them to play a larger role in fighting global climate change is commendable, TIER is not as effective as it could be. The program does not provide enough incentive for the adoption or development of new technologies, it sets targets that are easier to achieve (leaving early adopters at a disadvantage while creating opportunities to unfairly reward those who are lagging behind), and finally it exempts a company that doesn’t perform well financially in any given year.

What is TIER and who does TIER apply to?

If the regulation passes through the legislature, it would come into force on January 1, 2020 and replace the Carbon Competitiveness Incentive Regulation (CCIR), put into place by the previous NDP government. The structure of the newly introduced TIER program creates a hybrid of the NDP’s program and the Specified Gas Emitters Regulation (SGER) put into place by Premier Ed Stelmach in 2007. It would cover 127 large emitters and another 34,000 smaller emitters than can opt-in to the program.

The SGER, which was in place from 2007 to 2017, set a price on carbon at $15 and per tonne of emissions that exceed the legislated limit. This was increased by the NDP government to $20 per tonne in 2016, and to $30 per tonne in 2017 until it was ultimately replaced in 2018 by the CCIR. While the CCIR kept the price on carbon at $30 per tonne, it also introduced sector-specific standards that incentivized quicker adoption of new technologies in order to meet standards or pay.

The TIER program maintains the price at $30, and will maintain the sector-standards for electricity, but will introduce facility-specific targets for the oil and gas sector, which means an individual facility has to perform better than it has in the past in order to avoid paying the compliance costs.

TIER is retroactive. It will apply to facilities that emitted 100,000 tonnes or more per year of greenhouse gases (GHGs) since 2016. Facilities with less than 100,000 tonnes of emissions per year will remain eligible to opt-in.

As stated above, under TIER, there will be different standards for electricity than for oil and gas facilities. Electricity generators are Alberta’s second-largest emitters and are expected to see cuts in emissions in the future. Electricity facilities would face a set sector-wide standard and regulations here remain largely unchanged from CCIR, allowing producers to continue to operate under the same set of rules prior to TIER.

Oil and gas facilities will have two options when it comes to setting and meeting their emission thresholds.

The first option is the facility-specific benchmark. It requires a 10 per cent reduction in emissions by 2020 from the amount that qualified the facility to be regulated under TIER (anything above 100,000 tonnes), with an additional one per cent reduction per year starting in 2021. For example, if a facility emitted 105,000 tonnes, they must reduce their emissions to 94,500 by 2020 or pay compliance costs.

The second option is a “stated high-performance” benchmark that uses the average emissions intensity of the top 10 per cent of facilities in a sector. This means that a facility can either adhere to this benchmark or revert to the first option, which allows them to use their facility-specific benchmark emissions level. This allows each facility to use its own average emissions intensity by 10 per cent.

This facility-specific approach disincentivizes innovation for the industry. It devalues emissions-reducing innovation since newer and better-performing facilities now receive lower emissions credits for every year the TIER program is in place.

The program also includes a Compliance Cost Containment Program (CCP) for facilities facing economic hardship. This means that if it costs more than 3 per cent of sales or 10 per cent of annual profits for a facility to reduce its emissions, the facility is eligible for government support, which includes additional compliance flexibility and free benchmark allocations. This could further reduce the effectiveness of the TIER program on emissions reductions.

The TIER program is expected to implement a carbon price on 55 per cent of the province’s total emissions. Although the government has eliminated the provincial carbon tax for individuals, Minister Nixon has stated that the TIER program will meet the federal government’s standards for large emitters, exempting Alberta’s industry from federally imposed carbon pricing. The federal fuel charge will still apply to citizens and lower-emitters starting January 2020 – more commonly referred to as the federal backstop.

Where does the money go?

When a facility exceeds its emissions targets, they will have three choices: buy credits from another facility, buy carbon offsets, or pay into a government technology fund at the current carbon price (currently $30 per tonne).

These revenues will partly support technology and innovation that further reduce emissions. According to the provincial budget the government expects to raise roughly $478 million in the 2020-21 fiscal year. However, less than half of this ($200 million) will be earmarked for innovation and technology, while $189 million is earmarked for overall deficit reduction and to fund the Canadian Energy Centre. Any remaining funds, less than 20 per cent of the expected $478 million, will go towards carbon capture projects, operations and workforce transition. Under the NDP program, the funds were going to general revenue, but a majority of the revenue was earmarked for investments in infrastructure and innovative technologies.

Moving Forward

While deficit reduction is important to the overall economic health of our province, we also believe that we must prioritize technology innovation so we can best position Canada to be a world leader in the global fight against climate change AND natural resource development.

We encourage the government to implement a stronger signal for innovation and accelerate the pace of adopting new technologies that allow us to contribute to global climate change in a more meaningful way. We also encourage a more balanced approach that levels the playing field between industries as well as facilities.

We have an opportunity to export not just our resources, but our technology and technical expertise so that other parts of the world can also reduce their footprint. Increased investments into emissions reductions technologies would allow for faster development and commercialization for our technology and innovations.