As we blogged about back in July, Alberta has been busy reviewing TIER - the regulation that underpins the carbon markets in the province. It's the regulation that requires large emitters to report on their annual GHG emissions, and meet reduction targets. It's also the regulation that allows these same emitters to use offset credits (i.e. voluntary reductions made at non-regulated sites) in lieu of on-site reductions. It was due to expire on Dec 31, 2022, so this review was pretty critical. And, given the bar-raising expectations set by the Federal government early in 2022 (more about that here), the results of the provincial review have been eagerly awaited by regulated industries, carbon offset project developers and interested citizens alike.
The wait is now over (mostly...more on that later). The TECHNOLOGY INNOVATION AND EMISSIONS REDUCTION AMENDMENT REGULATION has finally been published. This Amendment Regulation takes effect Jan 1, 2023.
The Amendment includes many significant changes. The following changes will increase the coverage and stringency of TIER, and will therefore likely increase market demand for offset and emission performance credits, at least in the short-term:
Expansion of TIER aggregate coverage to include flaring - continuing the province's efforts to minimize flaring, TIER aggregates - oil and gas facilities that are not considered large final emitters, and which have chosen to join TIER rather than pay the Federal Fuel Charge - will now have to include flaring emissions as well as stationary fuel combustion emissions.
Lowering the opt-in threshold for EITE sites - sites that belong to an Emissions Intensive Trade Exposed (EITE) industrial sector used to be only allowed to join TIER if they had annual GHG emissions of 10,000 tonnes or more. This is now being lowered to 2,000 tonnes CO2e/yr.
A doubling of the benchmark tightening rate for most... - the 'tightening rate' - that is, the rate at which annual emissions targets are made more stringent - is being increased from 1%/year to 2%/year.
...but a quadrupling for the oil sands sector - unless the facility is an oil sands mine, in-situ plant or upgrader. in which case the tightening rate is being increased to 4%/year.
However, the Amendment also includes a couple of key measures that seem to recognize that the harder targets may cause short-term challenges for many facilities, while simultaneously ensuring greater responsiveness in the market in terms of balancing supply and demand:
An increase to how much of a compliance obligation can be met by offsets or EPCs... moving forward, with the threshold increasing by 10% a year between 2024 and 2026, facilities will be able to meet up to 90% of their annual compliance obligation through the use of offsets or EPCs, rather than the current limit of 60%.
...and a cut to the lifespan of offsets and EPCs - any new offset credits or EPCs will only have a 5-year lifespan rather than the current 8-years, encouraging market players to sell and retire them, rather than hedging them for extensive periods of time.
And, as if this wasn't all exciting enough...
Finally, the carbon price gets set for 2023 to 2030!
That's right - according to an official email notice from Alberta Environment - a TIER Fund Credit Amount Order is also to be published shortly - which will "[establish] the TIER fund price for 2023 through 2030 increasing from $65 to $170 in $15 annual increments". Although this has been widely anticipated, as it is in line with Federal Government plans, both purchasers and sellers of credits now know what a Fund Credit will be worth - and not just for next year, but for the next seven years - and it's a steep slope upwards, as shown in the graph below.
This is a welcome - and critical announcement - as it will provide longer time price certainty to the AB carbon market (something that has been sorely lacking over the last few years, when price announcements have been made on an annual basis).
So, the TIER Amendment Regulation has provided some much-needed direction for the AB carbon market after a year of much uncertainty - although, as I mentioned earlier, the wait isn't entirely over. Updates to the various Standards are in the works, and its entirely possible that changes to some of the Offset Protocols are also on the way.
However, what we do know now is that the TIER Amendment means: more emissions covered from more sites, with harder targets to meet and more expensive compliance alternatives.