Alberta invites feedback on plan to relax regulations and lower carbon tax on heavy industrial emitters

Alberta's new UCP government says it will invite feedback for the next 3½ weeks before moving ahead with its proposal to loosen regulations on some of the province's most carbon-intensive industrial facilities and reduce the carbon tax that specifically applies to them.

"We're pleased to be here to consult with about 150 industry stakeholders over the next three days," Environment Minister Jason Nixon said Tuesday at a press conference in Calgary.

Further consultations and the opportunity for online feedback will continue until Aug. 2, he said.

The consultations relate not to the consumer-level carbon tax that the new government already scrapped, but rather the separate carbon tax that applies only to facilities with annual carbon-dioxide emissions of at least 100,000 tonnes, which Nixon said account for roughly half of Alberta's total emissions.

As of Jan. 1, 2020, the UCP government wants to bring in a new "Technology Innovation and Emissions Reduction" (TIER) system, which would make it easier for the most carbon-intensive producers of oil and other products to meet emission thresholds.

The new system would also reduce the charge for exceeding those thresholds to $20 per tonne, down from the current rate of $30 per tonne.

TIER would be the third such system — and acronym — that Alberta has seen in the past few years when it comes to large-scale emitters.

First SGER, then CCIR, now TIER

The existing Carbon Competitiveness Incentive Regulation (CCIR) was introduced by the previous NDP government and took effect in 2018.

It replaced the old Specified Gas Emitters Regulation (SGER), which had been adopted by premier Ed Stelmach's Progressive Conservative government back in 2007.

UCP Leader Jason Kenney said during the election campaign that he preferred the old SGER system, which, in many ways, the new TIER plan resembles.

One of the most significant differences lies in how the thresholds for large emitters are set.

Under the current CCIR system, there is a common threshold for emissions "intensity" — the amount of greenhouse gas released per unit of production — for facilities of the same type.

So in the oilsands, for example, there is a threshold — measured in terms of kilograms of carbon dioxide emitted per barrel of oil produced — that applies to all facilities. Exceeding that threshold comes at a cost of $30 per tonne of CO2.

Combined with subsidies known as output-based allocations, the system effectively rewards the most efficient facilities and penalizes the least efficient ones.

And this created clear winners and losers, particularly in the oil industry.

Some oil deposits are simply harder to get at than others, so CCIR was a bitter pill to swallow for companies that had already committed to more challenging projects that, by their very nature, came with a higher emissions intensity — and therefore a higher cost.

On the flip side, companies with the least carbon-intensive operations stood to profit.

But TIER would change things back to a system that looks more like the old SGER approach.

Different targets for different facilities

Instead of industry-wide thresholds, Nixon said, the TIER plan would see different emissions-intensity targets for different facilities.

The baseline for each facility would be set at "their average emissions between 2016 and 2018," and then their target threshold would be to reduce that emissions intensity by 10 per cent in the first year of TIER, with the threshold growing by one percentage point annually. (So, 10 per cent in 2020, 11 per cent in 2021, 12 per cent in 2022, and so on.)

A separate system of thresholds would apply to electricity generation, based on a "good-as-best-gas" standard.

"This means that their emissions would have to be equal to the cleanest, natural-gas-fired generation plant," Nixon said.

Facilities that don't meet their thresholds would have three options: purchase credits from facilities that come in below their own thresholds, purchase carbon offsets from organizations that don't fall under TIER, or pay for the emissions overages at a cost of $20 per tonne.

The money from payments would go into the TIER fund, which would be used to support the development of carbon-reducing technologies, in a manner similar to the way existing CCIR levies are collected and distributed through Emissions Reduction Alberta.

Numerous economists, however, have criticized an approach to carbon pricing that sets different targets for different facilities.

Regulations not seen as 'best policy choice'

University of Calgary economics professor Trevor Tombe, for instance, has said such a system rewards "dirty facilities" more so than "clean facilities."

University of Alberta economist Andrew Leach, meanwhile, has argued that a broadly and uniformly applied carbon tax "is the best policy choice" if the goal is to spur innovation and technological change.

And Jack Mintz with the University of Calgary has said he's not a fan of what Kenney was proposing prior to the election, in terms of reviving a SGER-like system of regulation.

"The best way is to create the right incentive, which is put a price on carbon and then let the market … figure out how to reduce carbon," Mintz previously told CBC News.

Nixon acknowledged those types of criticisms Tuesday but said he doesn't "fully agree" with them.

Asked if the UCP had consulted with any economists about the TIER approach, Nixon said yes but he wasn't sure who those economists were.

"We consulted with economists when it came to our platform in great detail and TIER was a big part of our platform," he said. "It was clearly supported by economists on that and I'd be happy to give you some information on who went through our platform with us. I don't have that in front of me at the moment."

Nixon's press secretary later said that information wasn't immediately available and might not be until Wednesday.

The NDP, meanwhile, blasted the TIER plan.

"Essentially, what this government is doing is taking us backwards, going back to the old, failed SGER model," said Deron Bilous, the opposition critic for economic development and trade.

"What that did was really reward a race to the bottom."

More information about the TIER system is available online here, where you can also provide feedback to the government until Aug. 2.