Background

Increases in greenhouse gas (GHG) emissions due to the use of fossil fuels is a key contributor to climate change. To limit catastrophic impacts of climate change in the future, carbon pricing has emerged as the most cost-effective approach to mitigate the impact of GHG emissions.

Alberta and British Colombia are pioneers in developing carbon pricing systems in Canada, having introduced these systems in 2007 and 2008, respectively. In 2018, the government of Canada introduced a carbon pollution pricing system, the Greenhouse Gas Pollution Pricing Act (GGPPA). It is in place in any province or territory where requests to opt-in or where the existing pricing system does not meet the federal benchmark requirements. The federal government introduced the carbon pollution pricing system to maintain the global competitive position of Canadian industry, including the oil and gas sector. In turn, some of the provinces designed their own pricing systems for certain industrial sectors to reduce costs while still accomplishing the same GHG emissions reduction outcomes, to ensure equivalency with the Federal requirements.

Federal Carbon Pollution Pricing

The federal carbon pollution pricing system includes two components:

1. Fuel charge (the carbon tax) which has been effective in Alberta since January 2020.
2. Output-Based Pricing System (OBPS) which is designed for industrial emitters with GHG emissions of 50,000 tonnes CO₂e or greater and is not applied in Alberta.

The federal fuel charge began to apply on January 1, 2020 in Alberta and it applies on 21 types of fuel and combustible waste based on a carbon price of $30/tonne CO₂e in 2020, $40/tonne CO₂e in 2021, and $50/tonne CO₂e in 2022. Conventional oil and gas facilities do not have an exemption from the federal fuel charge.

The federal OBPS is designed to regulate GHG emissions from industrial facilities emitting 50,000 tonnes CO₂e or more per year with the option for facilities emitting 10,000 tonnes or more in certain sectors to participate voluntarily.

Conventional Oil and Gas Facilities in Alberta

Alberta Technology Innovation and Emissions Reduction (TIER) policy was designed to regulate GHG emissions from industrial facilities in Alberta and it became effective on January 1, 2020. The TIER regulations meet the federal government's stringency requirements for carbon pollution pricing systems and similar to the federal OBPS, it is an intensity-based approach and creates an incentive for the covered facilities to reduce emissions per unit of production. Different from the federal OBPS, which is not applied in Alberta, the TIER policy is designed to regulate facilities emitting 100,000 tonnes CO₂e or more while allowing facilities emitting below 100,000 tonnes to participate voluntarily to protect them from the federal fuel charge.

The TIER policy covers three kinds of facilities:

1. Large emitters with GHG emissions of 100,000 tonnes CO₂e or more (mandatory inclusion)
2. Opted-in facilities with GHG emissions under 100,000 tonnes CO₂e (voluntary inclusion as an individual facility)
3. Aggregate facilities including 2 or more small conventional oil and gas facilities (voluntary inclusion as an aggregate facility)

An owner or operator of a facility regulated under TIER is exempted from the federal fuel charge if an exemption certificate is obtained for the facility.

How Output-based Carbon Pricing Systems Work

Figure 1 shows how the output-based carbon pricing system such as TIER is used. Three (3) different facilities with different emission intensities (0.3, 0.15, and 0.4 t CO₂e/production unit) are shown in the figure. Each solid blue bar indicates product emission intensity for a facility. The dashed line indicates an emissions benchmark (0.3 t CO₂e/production unit allowed for the compliance year) which could be either a “high performance” benchmark or “facility-specific” benchmark. Facilities with emission intensities below the benchmark (Facility B in the figure) generate credits - either offsets or emission performance credits (EPC) depending on the project type for emissions reduction. On the other hand, facilities with emission intensities above the benchmark (Facility C in the figure), have a compliance obligation that can be paid based on the carbon price/tonne of CO₂e, or submission of offsets or EPCs.  

Figure 1 - Facility performance example

Summary of TIER Regulations

A summary of TIER regulations including eligibility requirements, emissions reduction requirements, and regulated emissions for three kinds of facilities covered by TIER are listed in Table 1.

Table 1 - Summary of TIER regulations for three kinds of facilities

1. Not a larger emitter, an opted-in facility, or a part of another aggregate facility.
2. Applied for the facility-specific benchmark.
3. Emissions from fuels that are not subject to carbon pricing
4. Excluded from TRE and not counted towards the emissions threshold for inclusion in TIER

Federal Fuel Charge vs TIER

As shown in Table 1, emissions from small conventional oil and gas facilities regulated under TIER include only stationary combustion emissions and exported CO₂ from combustion sources. Fuel gas usage by flare and CO₂ in regulated acid gas injection streams are excluded. A comparison between the federal fuel charge and the TIER aggregate facilities is provided in Table 2.

Table 2 - Federal fuel charge and TIER comparison for conventional oil & gas aggregate facilities

Upcoming TIER Deadlines

Key dates for conventional oil and gas aggregate facilities are listed in Table 3.

Table 3 - TIER upcoming deadlines for aggregate facilities

TIER Benchmarking Process

The deadline for the benchmarking process is January 15, 2021. There are two paths for the facility benchmarking process:

1. Use a 2019 baseline:   Benchmarking process includes both benchmark unit application (or selection of benchmark unit) and benchmark application. If 2019 emissions are used for the benchmarking process, verification of 2019 emissions and production is required.
2. Use a 2020 baseline:   Benchmarking process includes only benchmark unit application (or selection of benchmark unit) and verification is not required.

There are two options to select the benchmark unit for aggregate facilities:

• Option 1: which includes production, disposition, and receipts parameters. Among these parameters, whichever has the highest linear correlation with stationary fuel combustion emissions for the baseline year should be selected as the benchmark unit.
• Option 2: if option 1 is not applicable, the person responsible can request an alternate benchmark unit.

If a benchmark unit application is not submitted, a benchmark unit will be selected by AEP on behalf of the operator. However, AEP recommends that the operator choose the appropriate benchmark unit.

How can Process Ecology help?

Process Ecology has an integrated emissions management system (Emissions Advisor) that can be used to estimate GHG emissions based on the most recent TIER quantification methodologies and assist with the benchmarking process application (benchmark unit application and benchmark application). In addition to quantification of emissions, we can also assist you to determine optimal mitigation strategies using technologies which are proven to be effective in the oil and gas sector. Send us an email at info@processecology.com.