How Alberta will keep its $30-per-tonne carbon tax but make it easier for some big emitters to avoid paying

Alberta's new UCP government will continue to apply a $30-per-tonne carbon price that covers the majority of greenhouse gas emissions in the province, but will loosen the rules so that some of the largest emitters could be on the hook for $330 million less in charges next year.

New legislation introduced Tuesday will replace the previous NDP government's regulations on most large emitters in the province, including oilsands operations, natural gas producers, chemical manufacturers and fertilizer plants. The rules for electricity generators, however, will be left largely unchanged.

All told, the province estimates these types of heavy-emitting facilities account for 55 to 60 per cent of Alberta's greenhouse gas emissions.

Environment Minister Jason Nixon believes the new policy will satisfy the federal government's requirements for carbon pricing on large emitters, meaning Ottawa won't impose its own pricing system on Alberta's industry. This system runs in parallel to the federal fuel charge — commonly known as the carbon tax — that applies to individuals and lesser-emitting companies.

With another Liberal government elected earlier this month, Ottawa is set to impose a $30-per-tonne fuel charge in Alberta starting on Jan. 1, along with rebates for individuals. But Tuesday's legislation only deals with the large-emitter side of things, which operates under a different carbon-pricing system.

All this talk may sound a bit theoretical and wonkish, but the stakes are real — and they're high. This legislation is expected to create winners and losers. Millions of tonnes of CO2 and hundreds of millions of dollars are on the line.

Nixon says the new law will "reduce costs for industry and help businesses stay competitive while reducing emissions."

Others worry the change will actually boost Alberta's emissions when compared to the existing regime for industrial-scale greenhouse gas producers, brought in by the previous NDP government.

Here's what's about to change.

What's old is new again, sort of

It's almost impossible to talk about this without getting bogged down in acronyms, so right off the hop, here are the three you need to know. Each four-letter word refers to a different carbon-pricing policy, brought in via a different Alberta government, since 2007.

• SGER — Specified Gas Emitters Regulation (via Ed Stelmach's PCs)
• CCIR — Carbon Competitiveness Incentive Regulation (via Rachel Notley's NDP)
• TIER — Technology Innovation and Emissions Reduction (via Jason Kenney's UCP)

The latest policy is described as a hybrid of the two older systems.

The first system, SGER, took effect back in 2007. It charged a price of $15 per tonne for industrial emissions that exceeded an established target for each facility. This actually made Alberta one of the earliest adopters of a price on carbon.

The NDP raised that price to $20 per tonne in 2016 and again to $30 in 2017. And then, in 2018, it replaced the whole policy with its revamped version. The big difference with CCIR wasn't the price (which remained at $30 per tonne) but rather new targets that determined who pays that price (for exceeding the target) and who profits from it (by coming in under the target and amassing credits that can be sold for cash).

Now, the UCP government is set to replace CCIR with TIER in 2020. The price will remain at $30 per tonne (which happens to be the minimum required by the federal "backstop" on provincial carbon policies) but, again, it's those targets that are changing.

How much difference can a target make? A lot.

"It's anticipated that by transitioning to TIER, industry will save over $330 million in avoided compliance cost in 2020," reads a government briefing provided to reporters Tuesday.

And who stands to gain the most?

"The ones that stand to save the most are the worst performers, from a carbon perspective," said Sara Hastings-Simon, a research fellow at the University of Calgary who studies carbon-pricing policy.

New targets easier to hit

That's because those new targets will be easier to meet for the most carbon-intensive facilities.

Under the CCIR policy, which remains in effect until Dec. 31, there are industry-wide targets for emissions intensity. But TIER will change that. Instead of being compared to their peers, as a group, facilities will be compared to their own past performance.

So in the oilsands, for instance, there is currently a target (measured as carbon emissions per barrel of oil produced) that applies to all facilities. Come in below the target, and you can earn carbon credits. Come in above the target, and you owe.

But starting in January, each facility will play by a different set of rules. Instead of being measured against an industry-wide standard, a facility will be measured against its own average emissions intensity from 2013 to 2015. Its target will then be set at 10 per cent below that level for 2020.

To avoid punishing facilities that have already made major gains in their environmental performance, there will also be a "high-performance" target that facilities can choose to compare themselves against instead. The government says facilities can opt for whichever target is "less stringent" in their own case.

Under all three policies, facilities that exceed their target have three choices: buy credits from another facility, buy carbon offsets, or pay into a government fund at the applicable carbon price (currently $30 per tonne).

That fund is then used to dole out grants that support technology and innovation aimed at reducing emissions.

But, under TIER, that's not all the money will be used for.

Deficit reduction and the 'war room'

According to the provincial budget released last week, the province expects to take in about $478 million in carbon charges from large emitters in the next fiscal year.

Of that, it plans to put $200 million toward "innovation and technology." Another $189 million is earmarked for deficit reduction and to fund the government's energy "war room," a public relations operation that aims to combat what the province describes as misinformation about the oil and gas industry.

Hastings-Simon noted the money raised under CCIR was also used for things other than emissions-reducing technology, but said "the use of funds has broadened" under TIER.

"There's nothing inherently wrong with using revenue raised from a carbon tax to do other things," she said. "Of course, the more you spend it on programs that reduce emissions, the more emissions reductions you get. And vice versa."

And that leads to the next question: How will all this affect Alberta's greenhouse gas emissions?

Some see TIER as less effective — slightly

In a PowerPoint presentation provided to reporters Tuesday morning, the provincial government said there would be no real difference in emissions reduction once TIER replaces CCIR.

"Emissions outcomes are expected to be similar to the previous regulation," the presentation states.

Government staff reiterated that during a conference call with reporters, saying that because the per-tonne price remains the same between CCIR and TIER, the incentive for facilities to reduce their emissions also remains the same.

But an earlier version of the presentation obtained by CBC News, which includes speaking notes for the presenter, suggests otherwise.

"Emissions reductions are anticipated to be approximately five megatonnes less in 2024 under TIER than under the preceding CCIR," the speaking notes read.

A senior government official who agreed to speak to CBC News on condition that their name not be published, for the purpose of clarifying the ins and outs of this complex policy, said the difference is slight and due to a variety of factors.

"[TIER] is still getting almost the same reductions as CCIR, with considerably less cost to industry," the official said.

"Basically they're the same when it comes to the effect of the regulation. Where there's a difference is that, under the NDP, there were some other complementary measures ... and so when you added those in, that's where you get about a six megatonne difference."

For context, six megatonnes is about 2.2 per cent of the roughly 273 megatonnes Alberta emitted in 2017.

The official also noted the broader UCP plan will have "other programs" to complement TIER, which are expected to further reduce emissions.

'Weaker signal'

The new policy has been praised by the Canadian Association of Petroleum Producers for recognizing the "unique circumstances" of each facility but, in the eyes of the Pembina Institute, TIER represents a step backward from CCIR.

The new regulation "sends a weaker signal for industry to reduce emissions," according to Jan Gorski, an analyst with the environmental think-tank.

"The new system is unfair and inefficient, sending skewed market signals by punishing companies with good performance and those that have already taken steps to reduce emissions while rewarding those that haven't taken steps to reduce emissions," Gorski said in a written statement.

Hastings-Simon, who used to work with Pembina, said there's a mix of pros and cons in the new regulation, if the goal is to curb Alberta's output of greenhouse gases.

"It's a change but not a complete retreat," she said. "It's not like a 180. It's a shift."

By maintaining the industry-wide target on power plants, she said the UCP's new legislation is actually more stringent on electricity producers than even the federal backstop on large emitters would be. But, by loosening the targets for all other industries, she worries the province is sending the wrong signal — not in terms of carbon price, but overall psychology.

While she understands, in theory, that the incentive to reduce emissions remains the same if the price stays at $30 per tonne, she doesn't believe that's how things always play out in practice, especially among the heaviest emitters that face the biggest obstacles in reducing their carbon footprint.

"If you're in the business of making and selling widgets, you think about, 'OK, well, I better get down to my target so I don't have to pay a carbon price,'" she said. "But you don't necessarily then think, 'Oh, well, if I reduce my target even more, I'm going to get emissions performance credits that I can sell to somebody else.' Because that's not your your main business."

That said, the $30 price may continue to climb.

Federal rules — and uncertainty

Existing federal legislation will bump the minimum carbon price up to $40 in 2021, then $50 in 2022 — assuming nothing changes in Ottawa. But with the uncertainty of a minority Parliament, nothing is set in stone.

In their conference call with reporters Tuesday, provincial government officials admitted the door is open to future price increases under TIER, given the direction the federal government has provided so far.

Nixon, however, said he wouldn't entertain the "significantly hypothetical question" of how big a carbon price Alberta's large emitters will have to pay in 2021 and beyond.

"We will be having that conversation with the federal government and we will be having that conversation with industry," he said.

How high will the carbon price go in the future? That remains an open question.

What's certain, for now, is that avoiding that price — or profiting from it — is about to get easier for some of Alberta's biggest emitters.