In Alberta’s current carbon pricing system, called the Specified Gas Emitters Regulation (SGER), major industrial facilities must reduce their “emissions intensity” (i.e. emissions per unit of production) by up to 12 per cent, relative to their typical performance or “baseline” level. The target phases in over time, reaching the full 12 per cent requirement in a facility’s ninth year of operation, and remains at 12 per cent after that.
For example, an established oilsands facility with a typical performance of 100 kilograms of greenhouse gas emissions per barrel of bitumen produced would have a target of reducing its emissions to 88 kilograms per barrel.
The company has three options for meeting this target. It can improve performance at the facility (or buy credits from another facility that has beat its target), purchase credits from an Alberta-based offset project, or pay into a technology fund at a rate of $15 per tonne of emissions.
Since companies can use any combination of these options to meet their target, the fixed rate for paying into the technology fund acts as a price cap. In other words, any reductions costing more than $15 per tonne are likely to be left on the table. After all, if you can meet your target by paying $15 per tonne into the technology fund, why pay $20 per tonne or higher to actually reduce emissions at your facility? Either way, companies meet their regulated obligations — naturally they would choose the lowest-cost option to do so.
This effect also applies to offset credits, which are credits granted for reductions from projects outside of the SGER. Since offsets are unlikely to sell for more than $15 per tonne, developers will only go after the cheapest projects, often leading to significant concerns about the environmental integrity of the offsets and their effectiveness as a tool for reducing emissions.
For a more detailed assessment of Alberta’s climate policies, including the SGER, check out Responsible Action? An Assessment of Alberta’s Greenhouse Gas Policies.
For a more detailed look at the economic signals of Alberta’s system and how they compare to a carbon tax like B.C.’s, check out this informative article from Andrew Leach.