Alberta’s Climate Strategy: A New Approach to Match the Changing Times?

Photo: THE CANADIAN PRESS/Amber Bracken

On November 22nd, Premier Rachel Notley announced Alberta’s highly-anticipated Climate Leadership Plan.  The Plan signals a significant policy shift for Alberta, and could prove an important step towards meaningfully tackling emissions in Canada’s most carbon-intensive province.

Prior to the new policy being announced, Alberta had been focused on addressing the emissions intensity of major industrial facilities through the Specified Gas Emitters Regulation (known as ‘SGER’). Since 2007, the regulation has required large emitters to reduce their emission per unit of production by up to 12 per cent over an average baseline level. Emitters could use ‘flexibility mechanisms’ to comply with the regulation: they could choose to purchase Alberta-based offset credits or pay into a technology fund at a cost of $15 per tonne of carbon. The Notley government made clear early on that a more ambitious approach was needed to achieve the province’s climate change objectives.

November’s Leadership Plan was released alongside a formal report from the Climate Change Advisory Panel; both documents were the culmination of a process that included a discussion paper and public consultation (Delphi covered this process in a previous blog). The Advisory Panel’s report was a key input into the government’s decision-making process and included several detailed policy recommendations. The Leadership Plan does not represent a full endorsement of those recommendations by government, and details on how the Plan will be implemented are anticipated in the coming months.

The Plan covers four key pillars, namely:

  • Economy-wide carbon pricing;
  • Phasing out coal and increasing renewable power generation;
  • Capping oil sands emissions; and,
  • Reducing methane from oil and gas operations.

The tables below summarize the information that has been released, and some of the questions that remain outstanding.

Carbon Pricing: Establish a new and broader-based carbon price in Alberta to cover 78-90% of provincial emissions
Subject Proposed Details Questions
Carbon price
  • Price starts at $20/tonne of CO2e on January 1, 2017, moving to $30/tonne on January 1, 2018, and increasing in real terms each year thereafter.
  • Emissions from transport and heating fuels will be priced at the fuel distributor, or importer stage in the case of utilities that source energy outside of the province.
  • SGER (Specific Gas Emitters) system covering large emitters will transition to new approach:
    • Product-specific emission performance standards will replace the current uniform intensity-based reduction approach
    • Emissions from on-site combustion of fuels in conventional oil and gas will not be covered until January 1, 2023
    • SGER expected to remain in place (aligned at $30/tonne in 2018) in near term, transition plan to be developed
  • Small oil and gas facilities (threshold to be determined) are exempt from the carbon price until 2020 as they reduce emissions under the methane initiative in the near term (see below).
  • Agricultural fuels will be exempt.

 

  • How will the revenue be used and what mechanisms will it flow through?
  • Will the existing technology fund continue to play a role in investing proceeds into new research and implementation projects, or will a new/different avenue be used?
  • How will specific product/sector performance standards be set? Will they be based on international best practices or Alberta-specific measures?
Flexibility mechanisms
  • Access to flexibility mechanisms (the ability to purchase Alberta- based offsets or pay into the existing technology fund in lieu of reducing operational emissions) is expected to continue to be a compliance option for large emitters, and may be extended to others as well
  • Who will have access to flexibility mechanisms?
  • If flexibility mechanisms are not part of the new carbon price approach, how will existing offset projects be integrated into new approach?
  • How will the potential for double-counting be addressed for existing offset projects that involve sectors that will be covered by a price in 2017 (i.e. transportation fuels)?
Transition
  • Alberta will establish an ‘adjustment fund’ to help consumers, First Nations, and industry recover costs/adapt to the shift
  •  What mechanisms will the adjustment fund use to support the low-carbon transition – direct utility bill assistance, incentives for energy efficiency, compensation to large emitters?

 

Electricity: Accelerate coal phase-out, commit to no pollution from coal-fired electricity generation by 2030 
Subject Proposed Details Questions
Performance standard
  • Impose a sector performance standard for coal–fired generation beginning in 2018, set at a rate equivalent to the cleanest natural gas-fired plant
  • Coal-fired generators are to pay a carbon price ($30/tonne) if they exceed this performance standard

 

  • How will the performance standard be established?
Retiring coal
  • Two-thirds of coal-generating capacity will be replaced by renewable energy (expected to be mainly wind and solar)
  • By 2030, renewables are to account for up to 30% of total generation capacity
  • How will the shift be implemented without harming reliability, causing undue rate spikes, and/or stranding capital?
  • What (if any) mechanisms will the province use to encourage the development of renewable generation capacity?

 

Capping Oil Sands Emissions: Legislate an emissions limit on oil sands production of a maximum of 100 Megatonnes (Mt) in any year, with provisions for cogeneration and new upgrading capacity 
Subject Proposed Details Questions
Cap
  • Current emissions levels in oil sands operations around ~70 Megatonnes (Mt) per year, cap will therefore allow for continued growth in near term
  • Transition to product- or individual sector-based performance standards that will not be uniform across all oil and gas facilities. This will replace the existing intensity targets, which are based on GHG reductions per unit of production regardless of type of product.
  • What (if any) additional measures may be taken in the near term to incent efficiency/reductions from current emissions levels while cap allows for growth?
  • How to actually impose a 100 Mt limit, unless through cap and trade?
  • How will the performance standard be determined for different oil sands production techniques?

 

Reducing Methane: Implement a strategy to reduce methane gas emissions from oil and gas 45% below 2014 levels by 2025 
Subject Proposed Details Questions
Emissions standards
  • New design standards will be applied to new facilities

 

  • How will existing methane-related offsets be integrated into any changed regulations?
  • How will Alberta avoid double-counting with other reduction requirements?

 

Monitoring and verification
  • New five-year voluntary initiative on methane reduction and verification to be developed

 

Whether or not Alberta’s plan will achieve its climate change objectives will depend on how the outstanding questions and issues are resolved in the coming months and years.

More detailed consultations on implementation will begin in 2016, with Alberta likely to seek ongoing engagement with industry, First Nations and other stakeholders.

 

Delphi will continue to help partners and clients navigate the complex world of climate policy in Alberta so that they are prepared for what’s ahead. We can help your organization understand policy scenarios, capitalize on opportunities and manage risks from technical, financial and regulatory perspectives.

 

While the devil may be in the details, Alberta’s Climate Leadership Plan represents much stronger engagement with the kinds of issues – such as social license, market access, economic growth and low-carbon development – that underpin the global and national conversation about climate action.

Contributors:
Ingrid Hoffmann –  Policy Analyst (ihoffmann@delphi.ca)
Jessica Butts – Consultant, Policy Lead (jbutts@delphi.ca)

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