Canada: Alberta Announces New Climate Change Policy

On a sleepy Sunday afternoon (yesterday, that is), Premier Notley unveiled her new Climate Leadership Plan for Alberta. In addition to making available the full report of her Climate Change Advisory Panel (Climate Leadership – Report to Minister), Premier Notley outlined four policies that will be implemented to reduce greenhouse gas emissions in Alberta:

  1. Alberta will be phasing in an economy-wide carbon price of $30 per tonne (t) of carbon, beginning at $20/t in January 2017 and moving to $30/t in January 2018. The price will be adjusted to keep pace with prices and growth, taking account of what peer jurisdictions and competitors do. The carbon price (Premier Notley avoided referring to it as a tax) will be revenue-neutral in that all revenue will be reinvested into measures to reduce emissions including clean research and technology, efficiency programs, and funds to help families and small businesses with the transition.  
  2. An overall oil sands emissions limit of 100 Megatonnes (Mt) of carbon per year will be legislated (Alberta's oil sands currently generate approximately 70 MT of carbon per year). Additionally, the Alberta Government will act to reduce methane emissions from the oil and gas industry. Interestingly, the cap on emissions from the oil sands at 100 Mt is not a recommendation that came from the Advisory Panel and no analysis on how this limit was selected can be found in the report. The Alberta Government's website states that the limit "was jointly recommended to government by Canadian and international leaders in Alberta's oil sand industry and leaders in Canadian and international environmental organizations."  
  3. Alberta will phase out its coal-fired power plants by 2030 and will aim to replace two-thirds of its existing coal-fired electricity with renewable energy.  
  4. Alberta will introduce an energy efficiency program.

The extent to which Premier Notley intends to follow the implementation plan laid out in her Advisory Panel's report is unclear at this point. She indicated that there will be consultation with stakeholders in the months to come. If her advisory panel's plan is followed closely, we can expect to see the repeal of the Specified Gas Emitters Regulation (SGER) and the introduction of a new "Carbon Competitiveness Regulation" pursuant to which an economy-wide carbon price would be applied to end-use emissions. The Advisory Panel described its proposal as being similar to the systems now in place in Quebec and California, and indicated that distributors of transportation and heating fuels would be required to acquire emissions permits in recognition of the emissions their products will create when combusted. Emissions permits could be acquired either through the purchase of credits from other emitters, through the purchase of Alberta-based offsets, or through the payment of a carbon levy to the Alberta Government.

Additionally, the Advisory Panel recommended separate rules for large industrial facilities (100,000 tonne/year); all emissions from such facilities would be priced, but the facilities would be allocated emissions rights in proportion to output. The output-based allocations would reflect top-quartile performance or better, and would decrease over time at 1-2% per year to reflect expected energy efficiency improvements. For power generation facilities, output-based allocations would be based on a good-as-best-gas standard and there would also be special treatment for upgraders and refineries. The Advisory Panel's rationale for separate treatment for large final emitters is not because they are large emitters, but because they tend to be trade-exposed facilities. The Advisory Panel noted that emissions policies that impose high average costs of production in Alberta could shift activity and prosperity to other locations with no real impact on emissions. The use of output-based allocations of emissions permits on the other hand lowers the average cost of compliance for trade-exposed sectors, while ensuring that the carbon price provides a reward for all emissions reductions achieved, except for those which occur due to decreases in production.

As regards the phase-out of coal-fired electricity and increased renewable generation capacity, the Advisory Panel recommended that this be done while retaining Alberta's competitive electricity market structure. It suggested this be achieved by a clean power call through which the Alberta Government would provide partial, long-term revenue certainty for renewable power at the lowest overall cost to consumers. The Advisory Panel described the intended clean power call as (p. 49): open, competitive request for proposals for government support. Through this mechanism, government would commit to an annual schedule of financing availability (e.g. for 350MW of new capacity to be available by 2018) and request proposals from developers for the level of support required, with support provided through the government purchase of the renewable energy attributes of the power. In effect, the government would purchase renewable energy credits, or RECs, from the projects on long term contracts.

The Advisory Panel's expectation that such a process can be carried out while retaining Alberta's competitive market structure seems, at first glance, optimistic. We intend to address this issue further in a future post.

Irrespective of the final mechanisms chosen to implement the policy, what is clear is that Premier Notley has put an absolute cap on emissions from the oil sands and is boldly moving away from a policy under the SGER that captured only approximately 45% of Alberta's carbon emissions to an economy-wide policy capturing all emissions. It is her expressed hope that these policies "will lead to a new collaborative conversation about Canada's energy infrastructure on its merits, and to a significant de-escalation of conflict worldwide about the Alberta oil sands."

Though a Sunday afternoon seems a strange time to make such a momentous announcement, Prime Minister Trudeau's recent scheduling of a pre-Paris Climate Conference meeting with all Premiers for today (November 23, 2015) left Premier Notley with little choice and even less time than she might otherwise have liked, having committed to announce her new strategy at some point prior to the Paris Conference. Why did she need to get out ahead of the meeting with the Prime Minister and Premiers? Because her new strategy, though ambitious in its design and breadth, also recognizes the reality that carbon policies cannot be as stringent in Alberta as they can be elsewhere in the country without imperiling Alberta's energy economy from which all Canadians are beneficiaries.  As noted by the advisory panel, absent further action, Alberta's emissions are currently on a trajectory to grow from 267 MT in 2013, to 297 MT in 2020, and to 320 MT in 2030. If all of the panel's recommendations are implemented, emissions would be expected to decrease from current trends by approximately 20 Mt by 2020, and approximately 50 Mt by 2030. This would roughly stabilize emissions, by 2030, just above current levels at approximately 270 Mt.(it is not clear what impact the cap on emissions from the oil sands will have on these forecasts given that the cap does not appear to have been factored into the Advisory Panel's analysis).

In other words, while these new policies will meaningfully contribute to emissions reductions below what they might otherwise have been, it does not appear that these policies will  achieve reductions below 2005 levels (the baseline year from which absolute reductions will be discussed in Paris). And so, while the announcement shows clear and decisive climate change leadership, Premier Notley is also looking for the Prime Minister and other Premiers to recognize Alberta's otherness and to allow its oil and gas industry to compete on a footing similar to its competitor jurisdictions. The Advisory Panel reached the conclusion that imposing policies in Alberta that are more stringent than what they suggested would not be tenable until Alberta's peer and competitor jurisdictions adopt policies that would have a comparable impact on their industrial sectors. Once such policies are in place in other jurisdictions, Alberta can do the same without sacrificing Canada's prosperity due to carbon leakage. For this reason, the Advisory Panel recognized that the policy must be reviewed with frequency and must be flexible in its approach. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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