In Alberta, the government runs a series of programs that aim to reduce greenhouse gas emissions from businesses that operate in the province. The Technology Innovation and Emissions Reduction (“TIER”) system is one such program. It sets out Alberta’s approach to reducing emissions from large industrial emitters while keeping its industries competitive. On January 1, 2023, significant amendments to the system came into effect. We’ll examine the changes and explain what they mean for Alberta businesses.
TIER creates benchmarks and offers incentives to industrial emitters
The core of Alberta’s emissions management strategy is outlined in the Technology Innovation and Emissions Reduction (“TIER”) Regulation. TIER is a system that imposes an emissions benchmark on certain facilities that operate in the province. It also offers offset credits to facilities that voluntarily reduce their emissions, which can be used to meet their TIER compliance obligations.
What facilities are subject to regulation under TIER?
TIER applies to “large emitters.” The new amendments expand the scope of this definition. Now, facilities regulated by TIER include those that emitted 100,000 tonnes or more of carbon dioxide equivalent per year in 2016 or any subsequent year. It also applies to facilities that import more than 10,000 tonnes of hydrogen annually. The amendments also lower the emissions threshold for facilities wishing to opt-in to the program. Smaller emitters can opt-in to TIER if they:
- compete directly with another regulated facility
- emit 2,000 tonnes of carbon dioxide equivalent or more, and
- belong to an emissions-intensive, trade-exposed sector.
As well, the owner of two or more conventional oil and gas facilities can apply to be regulated under TIER as an aggregate facility.
Facilities have options to meet their emissions benchmark
The most straightforward way for a facility to meet its TIER emissions benchmark is by making its operations more energy efficient. If they can’t meet the benchmark, they must either:
- pay money into the TIER fund to purchase a “fund credit” for each tonne of excess emissions produced;
- use emissions performance credits generated by a TIER-regulated facility that reduced their emissions below their benchmark in the current or previous year; or
- submit emission offsets generated under an approved offset protocol.
The interplay between TIER and federal carbon pricing laws
The federal Greenhouse Gas Pollution Pricing Act sets out Canada’s carbon pricing approach. Essentially, this law puts a price on carbon pollution to reduce greenhouse gas emissions and spur innovation. Any province has the choice of adopting the federal pricing system or coming up with its own (as long as it meets minimum national stringency standards).
Alberta has taken a hybrid approach. Under the federal Greenhouse Gas Pollution Pricing Act, there’s a regulatory charge on fossil fuels and natural gas, known as the fuel charge, that applies in Alberta. But the province has also created its own output-based pricing system under TIER that applies to large industrial emitters. TIER’s output-based pricing system has been deemed equivalent to the federal approach.
Increase in cost of TIER credits to align with federal carbon pricing laws
One change introduced by the TIER amendments has to do with the price of carbon credits. The cost to obtain a TIER fund credit will increase annually in $15 increments, from $65 per credit in 2023 to $170 per credit in 2030. This change will align Alberta’s TIER system with recent changes to the federal carbon pricing system. It should provide some certainty to regulated Alberta businesses about the long-term price of carbon credits in the province.
Amendments establish a new set of TIER credits
A key change introduced by the amendments is the creation of a new variety of TIER credits. The purpose of the new credits is to encourage proponents of carbon capture and storage (“CCS”) to participate in TIER. (In a nutshell, CCS is the process of capturing emissions formed during industrial processes and storing them so they’re not emitted into the atmosphere.)
The new credits come in two varieties: sequestration credits and capture recognition tonnes. A facility can exchange an offset credit for a sequestration credit if the offset was created from the geological sequestration of carbon dioxide. The sequestration credit can then be used to satisfy compliance obligations under TIER. TIER-regulated facilities can convert sequestration credits into capture recognition tonnes and deduct them from their net emissions.
Further changes to the TIER system under new amendments
Other changes of note under the amendments include the following.
Accelerated credit expiry
The period after which offsets and credits are no longer valid is being reduced. Offsets and credits will expire after five years, down from the current eight- or nine-year expiry period.
A 2% tightening rate will apply to certain types of emissions benchmarks. For some facilities in the oil and gas industry, the annual tightening rate will be 4% in 2029 and 2030. Further high-performance benchmarks will be introduced early this year.
Higher credit use limit
Currently, offsets and credits can be used to satisfy 60% of a TIER-regulated facility’s compliance obligation. The limit will increase to 70% in 2024, 80% in 2025, and 90% in 2026 and beyond.
Key takeaways from the recent TIER amendments
The changes to the TIER system affirm the Alberta government’s support of CCS projects. Currently, there are nearly 25 CCS projects in the early development stages in the province. Should these projects come to fruition, the government has indicated it may introduce more CCS-related credits to encourage greater adoption of this emerging green technology by Alberta businesses.
Shortening the credit expiry timeline while expanding credit use limits is intended to spur greater demand for these credits. Higher demand should address the increasing supply of these credits as facilities ramp up their purchasing of credits under the TIER system.
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Navigating Alberta’s regulatory landscape can be difficult for any business. Take the guesswork out of it and trust the experienced business lawyers at DBH Law to guide you through. We take a pragmatic approach to the law, providing concise and responsive legal advice tailored to your business needs. Contact us online or by phone at 403-252-9937 to learn how we can help you today.