TIER Changes Raise Cost Avoidance Incentive, but Not CCUS The Alberta government recently passed amendments to the Technology Innovation and Emissions Reduction (TIER) carbon tax regulation in order to meet rising minimum standards under the federal government’s Greenhouse Gas Pollution Pricing act and avoid the imposition of a backstop program. The amendments were announced earlier in 2022, approved in late December, and came into effect January 1, 2023. At the heart of the changes are a meaningful increase to the stringency or tightening rate at which emitters must reduce emissions intensity over time to avoid penalties. While previously a tightening rate of 1% was applied to facility- specific benchmarks only, a proposed 2% annual tightening rate will now apply to both facility-specific benchmarks and high-performance benchmarks (like electricity). What is more, for oil sands production and upgrading specifically, the tightening rate will rachet up by 4% in 2029 and 2030. We believe the tighter stringency within TIER may be the Province’s attempt to avoid an additional oil and gas ‘cap-and-trade’ system (which the federal government has floated). Other changes include the creation of two separate buckets for credit generation (Sequestration Credits and Capture Recognition Tonnes) to aid in the administration of credit trading, as well as increases to the amount of credits used and their longevity prior to expiry. Finally, the amendment formally ratifies TIER’s alignment with the federal carbon price escalation plan, in which levies for non-compliance will be $65/T in 2023 and increase by $15/T increments to $170/T by 2030. Bottom line: the increasing stringency under TIER raises the level of emissions reductions that producers are obligated to make without penalty from ~20% to 32%, in turn increasing average compliance costs to $1.52/bbl from $0.68/bbl in our base case, and from a credit position to a net cost of $0.80/bbl under a scenario of expanded R&D and process-related emissions improvements.
CHOA JOURNAL - APRIL 2023 I 10