Alberta announces benchmark-based ETS for at-risk sectors as part of wider climate plan

Published 02:49 on November 23, 2015  /  Last updated at 14:22 on April 15, 2016  /  Americas, Canada, Carbon Taxes  /  No Comments

Alberta will replace its eight-year old emissions levy with a sectoral benchmark-based trading system from 2018, which will be aligned with a new provincial economy-wide tax to enter into force a year earlier, the government announced Sunday as part of its new climate change strategy.
  • Alberta announces new climate change strategy, building on steps set out by NDP govt earlier this year
  • Province to introduce new sectoral benchmark-based ETS-type scheme from 2018 to replace existing SGER
  • CCR to see price ceiling aligned to new economy-wide CO2 tax, which will start at C$20/t in 2017 and rise to C$30 in 2018
  • Other measures include oilsands emissions cap, coal power phase-out, and methane reduction initiative

Alberta will replace its eight-year old emissions levy with a sectoral benchmark-based trading system from 2018, which will be aligned with a new provincial economy-wide tax to enter into force a year earlier, the government announced Sunday as part of its new climate change strategy.

The tax will be “revenue-neutral”, start at C$20 ($14.93) in Jan. 2017 before rising to C$30 a year later, and apply initially to sectors not currently regulated under Alberta’s Specified Gas Emitters Regulation (SGER) programme, a senior government official told Carbon Pulse.

The briefing followed Sunday’s speech by provincial Premier Rachel Notley, where she announced a series of GHG-cutting measures including phasing out emissions from coal-fired power and capping the carbon output of Alberta’s oilsands.

She stopped short of setting a new GHG reduction target or deepening the province’s existing ones, which include cutting ‘business as usual’ emissions by 50 million tonnes by 2020, and halving BAU levels by 2050, equivalent to a 14% cut below 2005.

Alberta’s biggest emitters will still face the changes to the SGER set out by the government earlier this year, but from 2018 the system will be replaced by one where free emission allowance quotas for firms operating in around 12 trade-exposed industries are calculated based on performance standards set by the cleanest installations in each sector.

The government will calculate the average emissions per unit of production at all installations within a given sector, and set the baseline so that facilities in the top quartile either don’t need to do anything to comply or have spare Emissions Performance Credits (EPCs) to sell.

The SGER, meanwhile, currently applies only to installations emitting more than 100,000 tonnes of CO2e, and it forces those that have exceeded a historical baseline to either cut their output, buy EPCs from other plants that have reduced their GHGs, buy Alberta-based carbon offsets, or pay a set levy into a provincial innovation fund.

BENCHMARKS AND COMPLIANCE OPTIONS

The new programme, dubbed the Carbon Competitiveness Regulation (CCR), will affect all companies in those trade-exposed sectors, which will include oil and gas, power, petrochemicals, chemicals, cement, coal mining, and fertilisers, and offer any that have exceeded their sectoral benchmarks three of the same compliance options as under SGER.

The official said the innovation fund would cease to exist in its current form and that the payable levy would be based on the province’s wider carbon price, which would likely increase at an above-inflation rate annually but also be influenced by CO2 pricing in jurisdictions outside Alberta.

Under the updated rules for the SGER scheme announced in June by Alberta’s then newly-elected NDP government, the levy price – which effectively acts as a price ceiling for EPCs – is to rise to C$20/tonne in 2016 and to C$30 in 2017, up from the current C$15.

“We hope that rules and mechanisms underpinning these goals will leverage key elements of SGER while ensuring access to flexible compliance tools to cost-effectively reach these goals,” said Katie Sullivan, director of North American policy and international climate finance at the International Emissions Trading Association.

“Beyond price, we hope that future provincial rules and frameworks allow Alberta to deepen alignment and market linkages with regional jurisdictions.”

Quebec and Ontario are using carbon markets to help reach their provincial emissions reduction targets, while British Columbia – Alberta’s neighbour to the west – has had an economy-wide carbon tax since 2008.

**Click here for the draft design details of Ontario’s new cap-and-trade scheme**

OFFSETS

The province will continue consultations with industry, green groups, and other stakeholders before it finalises the finer details of its plan.

“We are pleased that flexibility mechanisms like offsets will play a role in the go forward strategy. There is likely a missed opportunity by excluding lower cost abatement from outside the province but on the whole, it’s a solid platform to build from,” said Yvan Champagne, president of offset developers Blue Source Canada.

However, a limit on offset use may also be introduced under the CCR programme following further consideration, the Alberta government official said, in contrast to the current system that doesn’t feature one.

Under SGER’s updated rules, eligible emitters will also be required to next year keep the GHG-intensity of their products below 85% of the historical baseline, down from 88% currently. It then drops to 80% in 2017, before the programme is replaced the following year.

The SGER programme came into force in 2007 but was due to expire on June 30 before the government renewed it.

OILSANDS CAP

Alberta is Canada’s most polluting province, representing more than a third of national emissions.

Its new strategy is based on recommendations made by a climate change advisory panel Notley formed shortly after her left-leaning party was elected last May, ending 44 years of Conservative rule in the province.

“Alberta is leading again, my friends … We’re going to stop being the problem, and we’re going to start being the solution, so Alberta goes back to the role we should be playing on energy and environment issues,” she said in her speech on Sunday.

As part of the plan, Alberta will apply a 100-million tonne limit on annual emissions from its oilsands, well above the industry’s current output of 70 million tonnes, while providing additional provisions for investment in upgrades or co-generation.

“The growth cap on oilsands is essentially business as usual. More needs to be done to bring Canada’s actions in line with the global need to avoid dangerous global warming,” said Louise Comeau, executive director of green group network CAN-Canada.

Alberta said it will also work with industry, environmental organisations, and affected communities to implement a strategy to reduce methane emissions by 45% from 2014 levels by 2025.

Emissions from coal-fired power will be phased out by 2030, with the government official clarifying that plants fitted with CCS technology would be exempt.

The province will expand gas-fired generation to meet baseload demand, and replace two-thirds of coal-generated electricity with renewables – primarily wind power – in an effort to source 30% of its production from such sources by 2030.

The government added that its priorities would be maintaining reliability, providing “reasonable” stability in energy prices, and ensuring that CO2-intensive assets are not unnecessarily stranded.

The electricity sector accounted for 17% of the province’s total GHG emissions, with industrial-site generation making up a further 2%. Around 55% of that power comes from coal, with another 31% coming from natural gas.

REVENUES

The measures, which experts say could cover 80-90% of Alberta’s emissions, are estimated to raise C$3 billion annually once fully implemented, and the government said it was taking measures to keep all financial flows stemming from the CCR and its wider climate strategy within the province.

All of the collected revenues are to be reinvested in clean research and technology, energy efficiency initiatives, low-carbon infrastructure including public transportation, and an “adjustment fund” that will offset financial assistance to individuals, families, small businesses, First Nations and coal industry workers affected by the strategy.

Premier Notley added that once Alberta’s economy is “back on its feet”, some of the proceeds may be used to help pay off the province’s debt.

The announcement came a day before provincial premiers are due to meet new Canadian Prime Minister Justin Trudeau to discuss the country’s climate strategy for the first time in seven years and a week before the UN climate summit is due to kick off in Paris.

In her speech on Sunday, Notley also called US President Obama’s recent decision to reject the Keystone XL pipeline a “kick in the teeth” that provided a wake-up call for Alberta to improve the environmental record of its energy sector, which some have labelled as amongst the world’s dirtiest.

By Mike Szabo – mike@carbon-pulse.com

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