Alberta’s Climate Change Panel Report23-Nov-15
On November 22, 2015, Premier Rachel Notley announced Alberta’s new climate change plan (“Plan”). The Plan is based on the report and recommendations of the Climate Change Advisory Panel struck by the province in the summer of 2015. The Panel’s report (“Report”) was presented to the Minister of Environment and Parks, Shannon Phillips, on November 20.
As has been widely reported, the Plan includes the following main elements:
- Expanding carbon pricing from large industrial emitters only to all sectors of the economy, including consumers. The carbon price will be $30/tonne by 2018.
- An accelerated phasing out of coal-fired electricity generation, by 2030, and a shift to renewable forms of energy production. The goal is to increase the overall share of renewables to 30%.
- The reduction of methane emissions from oil and gas operations by 40% from 2013 levels.
- Investing some portion of the money raised by carbon pricing (estimated at $3 Billion by 2018) to provide rebates to lower and middle class Albertans to offset higher fuel costs and to invest in improved energy efficiency and technology and innovation.
Currently, the Specified Gas Emitters Regulation (“SGER”) provides that larger emitters (industrial facilities that emit more than 100,000 tonnes/year CO2) either reduce their emissions or pay a levy of $15/tonne for emissions over 100,000 tonnes. When the province appointed the Panel it announced that the SGER levy would increase to $20/tonne in 2016 and $30/tonne in 2017.
The Report recommends that the SGER be replaced in 2018 with a Carbon Competitiveness Regulation (“CCR”). The CCR would impose carbon pricing economy-wide.
In addition to carbon-pricing, the CCR would provide sector-specific, output-based allocations of emissions rights to mitigate competitiveness and employment impacts for “emissions-intensive and trade-exposed” emitters—large industrial emitters with a substantial exposure to emissions costs and that compete at a provincial, national and/or global level and are therefore exposed and vulnerable to competitive market conditions.
Effectively, this is a variant of cap and trade, in which emissions permits will be provided at no charge, on the basis of production, to larger emitters. This will lower their average cost of emissions. The emissions rights can be traded. The emissions pricing regime proposed by the Panel recognizes that much of Alberta’s industrial sector faces significant trade exposure, and emissions policies which impose high average costs of production here could shift projects and jobs to other jurisdictions with no meaningful impact on reducing emissions.
The economy-wide carbon price will of course apply to electricity generation. Since many generators are large emitters, the regime of providing output-based emissions permits will also apply to these generators. By lowering the average price of emissions for generators, the imposition of carbon pricing should not result in major increases in the price of power.
The Panel recommends a “predictable phase out of coal-fired power... with appropriate lead time and a clear capacity retirement schedule”. According to the Panel, the accelerated phasing out of coal may give rise to an obligation on the part of the government to compensate generators depending on how the policy is applied. The government has not yet signaled one way or the other what its intentions are in this regard.
To ensure that renewables grow as coal is retired, the Panel recommends the adoption of a clean power “call mechanism”—an open, competitive request for proposals for government support. A kind of reverse auction, the winning bidders would be those renewables developers who require the least amount of government support.
That support will take the form of Renewable Energy Credits (“RECs”), which the government would purchase from projects on long term contracts. A REC is a financial instrument which “uncouples” the renewable energy attributes from the power generated by the facility, allowing them to be sold separately, thus providing the developer with two streams of revenue from the project instead of only one. In this way, renewables that currently are not economic will hopefully be made so.
Finally, the Panel recommends that a cap be placed on the level of government support, at $35/MWh, to limit the government’s exposure and send a signal that the cost of renewable energy must be “close to competitive” in order to merit public support.
Oil and Gas Industry
The expansion of carbon pricing economy-wide will mean that all sectors of the oil and gas industry will be covered. Producers of conventional oil and gas who do not meet the threshold for being larger emitters will be treated like end-users (ie, consumers).
However, producers who can aggregate wells or batteries in a particular area will be able to opt in to the large final emitters treatment and thus potentially be allocated emissions permits, even if their emissions fall below the 100,000 tonnes/year threshold. Similarly, small producers could opt in if they can pass a test of emissions-intensity and trade-exposure.
The Panel also recommends that refiners and upgraders qualify for emission permits. While it states that greenhouse gas policy should not encourage upgrading and refining per se, it recognizes that these are emissions-intensive and trade-exposed activities and that if Alberta’s policy is more stringent than competitor jurisdictions, they can relocate to those jurisdictions.
The oil and gas industry is the largest source of methane emissions in Alberta, at approximately 70%. Methane is a greenhouse gas that is 25 times more potent than C02 . Although Alberta’s methane emissions peaked in 1998, levels in 2013 were still 17% greater than 1990 levels. By contrast, in the U.S. methane emissions have decreased by over 13% since 1990.
The Panel says it heard broadly-based agreement among industry and environmental stakeholders that methane reductions represents one of the most cost-effective ways to reduce Alberta’s GHG emissions in the near term. A reduction of 40% is envisioned. This will require that the Alberta Energy Regulator (“AER”) introduce a new regulatory framework for methane management by mid-2016. The framework would impose new requirements that would raise current standards for performance, monitoring, measuring and reporting of methane emissions.
The Panel also recommends that the government direct the AER to specifically consider GHG emissions within project approvals and to design a system by which all new oil sands projects would be required to submit and have approved a Climate Mitigation and Adaption Plan. Further, there are several oil sands projects that have received regulatory approval but not yet been built. To encourage such projects to adopt new and leading-edge emissions technology that may have developed since they were approved, the Panel recommends that the AER establish a way for project approvals to be amended with minimal regulatory risk where the purpose of the amendment is to adopt such technology.
In the immediate aftermath of Premier Notley announcing Alberta’s new climate change plan, it has been variously described as “radical” and “game-changing”. Although only time will tell, it appears that in fact the plan (based on the report of the climate change panel) represents a blend of well understood approaches to GHG emissions reductions, tailored to meet the specific circumstances of Alberta.