After significant debate, the Alberta legislature passed the Climate Leadership Implementation Act (Act) on June 7, 2016. While it has yet to receive royal assent, the Act represents a significant step in converting portions of the Government of Alberta's Climate Leadership Plan (Plan), into law. In particular, the Act structures the carbon levy and certain energy efficiency aspects of the Plan applicable to consumers and small business emitters.
As discussed in our November 2015 Blakes Bulletin: Just Like Any Good Recipe, Alberta's Climate Leadership Plan Has a Little Bit of Everything, Alberta released the Plan on November 22, 2015. The Plan represents a dramatic shift in the province's approach to climate change and greenhouse gas (GHG) issues, including the proposed introduction of a carbon levy on transportation and heating fuels. The Act implements these aspects of the Plan, by enacting:
- The Climate Leadership Act
- The Energy Efficiency Alberta Act
- Consequential amendments to the Alberta Corporate Tax Act, the Alberta Personal Income Tax Act, and the Climate Change and Emissions Management Act
Among the numerous components of the Plan is the Alberta government's commitment to carbon pricing. The Act formalizes the carbon price at C$20/tonne of carbon dioxide (CO2 ) equivalent in 2017 and C$30/tonne thereafter. These rates are reflected in the carbon levy for the types of combustible fuels to which the Act applies. For example, the carbon levy applied to natural gas will be C$1.011/gigajoule (GJ) in 2017, increasing to C$1.517/GJ in 2018. The levy applied to gasoline will be C$0.0449/L in 2017, increasing to C$0.0673/L in 2018.
While the Climate Change Advisory Panel's report (on which the Plan is based) proposed a continued increase of the carbon price over time, the Government of Alberta has elected not to increase the price above the proposed 2018 rate of C$30/tonne until the economy is stronger and the actions of other jurisdictions, including the federal government, are better known. The federal government has proposed the introduction of a specific regime for the tax treatment of emissions allowances in the 2016 federal budget, and reached an agreement in principle with the provincial premiers regarding carbon pricing. However, there is still a great deal of uncertainty regarding what, if any, GHG emission control mechanisms will be adopted at the federal level. Should the Government of Alberta decide to increase the carbon price in the future, amendments to the Act will be required to adjust the carbon levy rates set out therein.
The carbon levy is designed to apply to the combustion of transportation and heating fuels in Alberta and thereby the emission of GHGs in the province. Pursuant to the Act, "recipients" are required to pay the carbon levy on fuels used in Alberta. Recipient is broadly defined to include most entities in the transportation and heating fuel supply chain, including:
To the extent that a recipient does not consume (i.e. combust) fuel themselves, they are entitled to recover any carbon levy paid by them from others in the supply chain, and ultimately the consumer. If a recipient is the initial entity in a supply chain, or the only user of the fuel in question, it will likely qualify as a "direct remitter" and therefore be responsible for remitting the carbon levy to the government.
Exemptions apply to fuels that are used in industrial processes but are not combusted, fuels that are subject to other aspects of the Plan such as the Specified Gas Emitters Regulation (SGER) framework, fuels that are exported, fuels that are used on interjurisdictional flights, and biofuels. Certain uses of fuel are also exempt from the levy, including natural gas produced and consumed on site by conventional oil and gas producers (until Jan 1, 2023), the use of marked gasoline and diesel in farming operations, and purchases of fuel on-reserve by eligible First Nations individuals and bands for personal and band use. Entities or individuals that satisfy the exemption requirements may apply for an exemption certificate or licence in accordance with regulations that have yet to be enacted.
The Act includes a number of strong enforcement mechanisms by which the government can recover unpaid carbon levy amounts, interest, and penalties. These amounts can be recovered as a debt owing to the minister, by garnishment, or from the directors of a corporation that has failed to remit the carbon levy.
The Government of Alberta anticipates that the carbon levy will raise C$9.6-billion over the next five years. Of that, C$3.4-billion will be rebated to low- and middle-income Albertans, small businesses, and communities, such as those largely dependent on the coal industry, that will be most affected by the carbon levy and the Plan generally.
In particular, the Alberta Corporate Tax Act will be amended to reduce the small business corporate income tax rate by one third, from three per cent to two per cent. Proposed amendments to the Alberta Personal Income Tax Act establish a full carbon levy rebate for couples and families with a net income of C$95,000 or less, and individuals with a net income of C$47,500 or less. The rebate will provide up to C$200 for an adult, C$100 for a spouse, and C$30 for each child under 18 in the household (up to a maximum of four children). In 2018, the available rebate will increase proportionately to the increase in carbon levy from C$20/tonne to C$30/tonne of CO2 equivalent.
The remaining C$6.2-billion will be invested in renewable energy initiatives, green infrastructure such as public transit, and used to fund a new Crown corporation, Energy Efficiency Alberta. Energy Efficiency Alberta has been statutorily tasked with a mandate to raise consumer awareness about the economic and environmental effects of energy use; promote, design and deliver programs related to energy efficiency, conservation and micro-generation; and to promote the development of an energy efficiency services industry in the province. On June 9, 2016, Shannon Phillips, Alberta's Minister of Environment and Parks, appointed an Energy Efficiency Advisory Panel to consult with stakeholders regarding the types of energy savings programs that Energy Efficiency Alberta should implement. The Panel will be chaired by Dr. David Wheeler, the current president of Cape Breton University, who has been involved with similar energy efficiency initiatives in Nova Scotia.
Impacts on Large Industrial Emitters
As noted above, heating fuels used at industrial sites subject to the SGER are exempt from the carbon levy. As a result, large industrial emitters ─ facilities that emit 100,000 tonnes of CO2 equivalent annually or more ─ are generally insulated from the Act. Pursuant to the Plan, large industrial emitters will continue to be subject to the SGER until the end of 2017, at which time the SGER regime (which currently mandates site-specific emissions intensity reductions) will be replaced with product-based emissions performance standards. For more information about recent changes to the SGER, please see our June 2015 Blakes Bulletin: Alberta's Renewed GHG Regime: Simple Changes with Complicated Effects.
The Act and carbon levy come into force on January 1, 2017.
Despite criticisms that the introduction of a carbon levy in Alberta's current economic climate is politically unwise, and lengthy debate at the legislature, the Act affirms that the Government of Alberta is following through with a significant aspect of its Climate Leadership Plan. Still to come are additional pieces of legislation and amendments related to other aspects of the Plan, including the restructuring of the SGER, and the imposition of a cap on GHG emissions from the oil sands.
It appears that the Government of Alberta is dedicated to implementing the Climate Leadership Plan as proposed in November 2015. The introduction of the Climate Leadership Implementation Act is the first step in that regard, and signals to small businesses and consumers that they will be subject to higher fuel costs in 2017. However, the Act does not address the SGER regime. Accordingly, we can anticipate further legislative enactments in that regard. In sum, the Climate Leadership Implementation Act provides clarity regarding the effects of the Climate Leadership Plan on small businesses and consumers, but leaves large industrial emitters and other industry actors waiting for the other shoe to drop.
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