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ENERGY & SUSTAINABILITY

Analysis, Thoughts and Conversations by Dan Zilnk

Alberta's Upcoming Climate Regime

Dan Zilnik

1. The existing SGER framework will likely stay in place in the near term. Alberta is pressing ahead with new climate-change regulations, Environment Minister Shannon Phillips said on June 2, 2015. This announcement sets the stage for higher green house gas (GHG) levies in the province as the oil and gas industry copes with the sharp downturn in commodity prices. Ms. Phillips notes that the newly elected New Democratic government (NDP) would introduce regulations by the end of June, when existing rules aimed at managing GHGs are set to expire.

The urgent question is what the most likely make up of this new climate regulation? 

The timing of a new regime is, in part, motivated by a previously planned overhaul of the province’s Specified Gas Emitters Regulation (SGER), introduced in 2007. The SGER overhaul was twice delayed under former Alberta premier Jim Prentice, who is said to have been studying more stringent rules. Alberta’s new premier, Rachel Notley, and her cabinet have noted that consultation with emitters will be critical in the success of a new regulatory regime. Given this timing and the commitment to consultation, a new regulatory architecture is unlikely in the near term as extensive consultation on a cap and trade system or an economy-wide carbon tax has not occurred. A second consideration is the United Nation’s climate summit in Paris that will take place in December 2015. Alberta’s new government wants to show significant progress on GHG management in this UN summit, where Alberta has historically been panned as a climate laggard.

If communicating progress in Paris is a priority, and the SGER architecture stays intact, Ms. Notley is likely to use several regulatory levers within SGER; these include:

  • Increasing the price of compliance, which is currently $15/ton;
  • Increasing the GHG intensity reduction requirement which currently 12% of emissions;
  • Accelerating the pace of compliance, which is currently a 2% reduction in intensity per year; and,
  • Increasing the coverage of SGER, which currently covers facilities in Alberta that emit 100,000 tonnes of CO2e per year or more.

2. Integration with NDP policy reform and North American trading schemes are long-term considerations. If SGER is revised, as our analysis predicts, this new regulatory regime could be a stepping-stone toward an even more stringent climate regime over the long-term, but this is not a foregone conclusion. Understanding the impacts of the revised SGER with expected NDP policies will likely be a key priority for Alberta’s new government. This includes understanding the impacts of the revised climate regime on Alberta’s oil, gas, coal and power sectors given the expected increase in corporate taxes and review of the royalty regime. Additionally the NDP, under Ms. Notley, is expected to further accelerate the current planned phase out of coal-based electrical energy. Together these reforms could impact end-consumers and the integration of the impacts together are likely to be a key consideration for Ms. Notley and Ms. Phillips as they decide if the SGER framework will be revised over the long-term.

Regardless of the long-term framework, price and targets, there are indications that integration with North American trading schemes is being planned. Integration with California, Quebec and Ontario’s trading schemes would likely increase the volume of tradable emission allowances available to Alberta emitters, but will likely reduce Alberta based allowances as the harmonization of requirement would void many Alberta land-use based allowances on the market.

3. No sure bets. O&G’s analysis suggests revision to Alberta based climate regulation in June 2015 will likely involve strengthening the requirements of SGER. There are no sure bets that this revised regime will stay in place over the longer term. Early signs-posts of further revisions or replacement of SGER would include consultation (similar to Ontario’s consultation) to come out concurrently to SGER revision or just before the climate summit in December 2015.