On January 1, 2020, new federal and provincial regulations come into effect. The technical name of the federal regulation is the Greenhouse Gas Pollution Pricing Act (GGPPA), but it is better known as the Carbon Tax. On that same day, the Government of Alberta is introducing its Technology Innovation and Emissions Reduction regulation (TIER).
This regulation is what the Government of Alberta is using to reduce emissions from large industrial emitters. However, upstream oil and gas facilities can opt-in to the TIER regulatory framework, and by doing so, avoid paying the federal government’s carbon tax on fuels consumed at these facilities.
It sounds complicated, so read on to find out how you can determine if you are better off paying the carbon tax or by complying with TIER.
Under the federal regulation, conventional oil and gas producers across the country will be required to pay the carbon tax when buying fuel. The only way to avoid paying this tax is to be covered by an equivalent regulatory framework at the provincial level. The Government of Canada recently announced that TIER has met the equivalency requirements of their program. As a result, conventional oil and gas facilities in Alberta that opt-in to TIER will be exempt from the federal tax.
What exactly do these changes mean for conventional oil and gas producers?
Conventional oil and gas producers will be responsible for paying the federal carbon tax on fuel. It will be applied at a rate of $30 per tonne of carbon dioxide equivalent (CO2e) starting January 1, 2020, rising to $40 per tonne in 2021 and $50 in 2022. This could mean additional overhead costs for the upstream oil and gas industry.
Fortunately, TIER provides options to protect conventional oil and gas facilities from the federal carbon tax. Every oil and gas producer operating in Alberta should be taking steps today to exempt their facilities from up to 90% of the federal charge.
TIER has been designed to allow oil and gas producers to voluntarily either:
- Aggregate small emitters (e.g. wells and other production facilities emitting less than 100,000 tonnes of CO2e annually) into a single administrative unit with a common person responsible for the aggregate; or
- Opt-in single facilities that emit between 10,000 – 99,999 tonnes of CO2e annually and competes directly with a regulated facility or belongs to an emissions-intensive trade-exposed sector.
Either pathway results in regulation under TIER, which provides producers with more flexible compliance options than a tax. Both regulatory frameworks require emissions reductions over time, however the flexibility embedded in the optional participation in TIER far outweighs the costs of paying the federal carbon tax.
For those producers who are in the top 10% of emissions efficiency, they may even be able to generate emission performance credits that can be sold to those who need to comply with the regulation. Aggregators like Cap-Op Energy or TriCore Carbon Solutions can help determine which pathway is best for you and assist with the process.
Opting-in vs. opting-out of TIER
Opting-out entirely means that your oil and gas facility will be responsible for paying the federal carbon tax on fuel purchases.
By electing to participate in TIER, you’re signing on not only for the exemption, but also to report your facility’s emissions and undergo third-party verification annually. You’ll need to establish a benchmark for your facility, which means quantifying the baseline emissions from 2019, and then striving to do better the following year.
Opting-in or aggregating your facilities in TIER is just the first step on the path of avoiding being taxed under the federal system by January 1, 2020.
Steps to Protect Against the Federal Carbon Tax
Step 1 – Compile your list of conventional oil and gas facilities to complete and submit the appropriate application form to Alberta Environment and Parks (AEP). You will then be able to obtain your TIER Registration Certification – your aggregated facilities are now regulated under TIER.
Step 2 – Submit TIER Registration Certification to ECCC. You’ll then receive a GGPPA statement number from ECCC.
Step 3 – Apply to CRA for your Fuel Charge Exemption Certificate. CRA will issue a GGPPA Part 1 Exemption Certificate to the designated individual.
Step 4 – Provide the Exemption Certificate to bulk fuel distributors.
Step 5 – For new wells or other greenfield facilities coming online in 2020 that were not included in the original Aggregate Application, the process needs to be repeated before they come online. This means a new TIER aggregate must be created, and another CRA Exemption Certificate will have to be obtained to avoid the federal carbon tax on fuel for any facilities that weren’t included in your initial application.
Step 6 – Prior to the end of 2020, a TIER aggregate application can be made to remove, add, transfer or otherwise consolidate individual facilities.
TIER allows smaller facilities to directly compete with larger emitters that are required to participate by reducing the cost burden associated with emissions taxes.
Carbon Offset Generation
If your facility is currently generating carbon offset credits under CCIR, you’ll need to consider the following:
- For projects using the Quantification Protocol for Engine Fuel Management and Vent Gas Capture, offsets resulting from engine fuel management will no longer be eligible for registration as of January 1, 2020. Vent gas capture projects will be eligible for aggregate facilities, but not for large emitters or facilities that opt-in.
- Projects using the Quantification Protocol for Greenhouse Gas Emission Reductions from Pneumatic Devices are still valid for participation until further notice since this activity (vented emissions) are not regulated for aggregate facilities. This does not include large emitters and facilities that opt-in.
Important TIER Deadlines
December 1, 2019
- This was the deadline for facilities opted-in to CCIR to opt-out of TIER for the 2020 compliance year
- Recommended date to apply for designation as an aggregate
January 1, 2020
- TIER replaces the CCIR
- Begin paying the federal carbon tax if exemption from CRA has not been granted
June 30, 2020
- Deadline to submit a third-party verified, compliance report for 2020
September 1, 2020
- Deadline for benchmark applications for 2020 compliance year
- Deadline for opting-in or aggregating for 2020 and 2021 compliance years
- Deadline to opt-out for 2021
Have questions about opting-in or what the process looks like? Cap-Op Energy or TriCore Carbon Solutions can guide you through the policy and process to ensure your business is best aligned with the regulation, avoids unnecessary payments and takes advantage of credit generation opportunities.