Canada: When The Levy Breaks: Alberta Government Tables The Climate Leadership Implementation Act

On May 24, 2016, Alberta's provincial government tabled Bill 20 for first reading in the legislature. Otherwise known as the Climate Leadership Implementation Act (Climate Act), Bill 20 furthers the implementation of the provincial government's Climate Leadership Plan released in November 2015. As discussed in a previous post, the Climate Leadership Plan identified carbon pricing as the primary policy tool for reducing emissions in the province. While still subject to debate, the new Climate Act proposes to provide the provincial government with a number of powers to enable the imposition of a carbon levy in the province.

Set to come into force on January 1, 2017, the purpose of the Climate Act is to "provide for a carbon levy on consumers of fuel to be effected through a series of payment and remittance obligations that apply to persons throughout the fuel supply chains." The revenues will only be used for (i) initiatives to reduce greenhouse gas emissions, or more broadly, to support Alberta's ability to adapt to climate change; or (ii) to fund rebates or adjustments related to the levies.

Details of Alberta's carbon pricing model were detailed in its April 2016 budget. As discussed in our earlier blog, the Alberta government anticipates that over the next five years, the carbon pricing regime will generate $9.6 billion, which will be reinvested in the provincial economy. Of that amount, $6.2 billion will be spent on diversifying the energy economy, while the remaining $3.4 billion will provide support for households, businesses and communities adjust to the carbon price.

The Levy

Carbon levies will be implemented on various enumerated transactions across the fuel value chain. However, only some levies must be submitted to the Crown directly. Persons on the ends of the value chain are "direct remitters," and are required to pay their levies directly to the Crown, whereas persons within the value chain must pay the levy to the person from whom they receive the fuel. Levies will also be implemented for prohibited sales of exempt fuels, prohibited uses of exempt fuels, and possession of certain marked fuels.

The Climate Act imposes a duty on vendors which prohibits them from collecting a carbon levy from consumers that have a carbon levy exemption certificate and will be using the fuel for a prescribed purpose (or any of the other exempt purchases set out in section 15(1) of the Climate Act). On the other side of the equation, persons can be required under the Climate Act to pay any outstanding levies; in the case of a corporation, this includes directors.

Various penalties exist for nonpayment of levies, and may be imposed on various persons including officers, by virtue of a delegation of duty provision. Direct remitters, vendors, retail dealers, and consumers can all be liable for fines ranging from $1,000 (for a first offence of a consumer) to $25,000 (for a subsequent offence by a direct remitter) and imprisonment. Such offences are nonetheless subject to the due diligence defence.

The Carbon Tax-Man Cometh: Third Party Payments

We note that the proposed legislation contains a provision for third party payments to be made to the provincial government. Section 39(1) of the Climate Act provides:

"If the Minister has knowledge or suspects that a person is or will be, within one year, liable to make any payment to a person that owes an amount under this Act (referred to in this section as the "debtor"), the Minister may, by written notice, require the person to pay the amount otherwise payable to the debtor in whole or in part to the Minister on account of the amount owing by the debtor."

What this means is that if Party A owes a debt under the Climate Act to the government, and Party B owes a debt to Party A, the government may collect Party A's debt to the government from all or a portion of the amount that Party B owes to Party A. Essentially, section 39 gives the provincial government the power to collect debts owed under the Climate Act through garnishment. It will be interesting to see the extent to which the government will rely on this provision to recover amounts owing by debtors under the Climate Act.

Exemptions to the Levy

There are generally two types of exemptions from these levies: exemptions based on timing within the value chain, and exemptions based on a person's purpose or use for the fuel. The Climate Act gives a process for applying for exemptions, which differs depending on the person's classification as either a "recipient" or a "consumer." Recipients are given a broad definition, generally including anyone who deals with "fuel," from production to sale and everything in between. Consumers only include persons who actually use the fuel, or allow someone to use their fuel at their own expense.

Consumers can apply for a carbon levy exemption certificate, which allows them exemption from levies so long as they provide the certificate upon purchase of the fuel, and they intend to use the fuel for a prescribed purpose. Instead of applying for exemptions for every levy a recipient incurs, recipients can apply for a licence that provides automatic access to refunds or credits to which they would otherwise be entitled. This licence can be suspended or revoked for a contravention of the Climate Act or any other law in Alberta.

Establishment of Energy Efficiency Alberta

Bill 20 also establishes a new government agency called Energy Efficiency Alberta, under the new Energy Efficiency Alberta Act. Energy Efficiency Alberta will have the mandate to:

  • raise awareness among energy consumers of energy use and the associated economic and environmental consequences;
  • promote, design and deliver programs and carry out other activities related to energy efficiency, energy conservation and the development of micro-generation and small scale energy systems in Alberta; and
  • promote the development of an energy efficiency services industry.

Bill 20 also provides Energy Efficiency Alberta with the power to make grants, contributions or loans. While further details on plans for the agency are currently sparse, the provincial government is in the process of taking the necessary steps to launch programming in early 2017.

Small Business Tax Savings

Bill 20 also amends the Corporate Tax Act in order to reduce the small business tax rate. As of January 1, 2017, the rate will be lowered from 3% to 2% in order to help small businesses adjust to the carbon price.

Implications for Albertans

While the Climate Act provides some clarification of the Alberta government's implementation process for its Climate Leadership Plan, observers are left wanting when it comes to some of the details. The impacts of the carbon levy will vary depending on energy use, so there is little detail on the financial impacts of the carbon levy on businesses. However, Alberta Treasury Board and Finance has estimated the impacts on households:

Further, the Climate Act mandates that Energy Efficiency Alberta must prepare and submit a multi-year business plan to the provincial government, including goals, objectives, targets, and a budget. However, at this time, no further detail has been provided on the content of such a plan, or any other information on how Energy Efficiency Alberta will fulfill its mandate.

Given that the province's April 2016 budget allocates $645 million to Energy Efficiency Alberta, it will be worth keeping track of further policy developments and information on the agency as it becomes available. Also notably absent is further detail or information on timing for Alberta's coal phase-out and transition to renewable power. Albertans hoping to find greater clarity on the transition will be disappointed upon a review of the Climate Act, and will need to stay tuned for further developments.

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