Output-based Allocation System Engagement
Alberta's new approach to managing industry greenhouse gas emissions.
Status: Under review
Ministry responsible: Environment and Parks
Alberta's Climate Leadership Plan outlines areas where the province will take action to reduce greenhouse gas emissions to ensure Alberta and our industries thrive in a carbon competitive global market as well as diversifying our economy.
Alberta will transition from the current Specified Gas Emitters Regulation (SGER) to a carbon competitive system in January 2018. This system will use an output-based emission allocations approach for emissions-intensive, trade-exposed industries.
Any facility that emits 100,000 tonnes or more of greenhouse gases will be included in the new greenhouse gas management system. Many types of facilities fall under this plan, such as:
- electricity production
- heat production and use
- oil extraction, upgrading and refining
- natural gas processing and transmission
- chemical manufacturing
Under the output-based allocation system, facilities will be allowed to emit a certain amount of greenhouse gases, free of charge from the carbon levy. This approach protects industries from competitiveness impacts that could shift production to other jurisdictions.
These "free" emissions will be determined based on a product-specific emissions benchmark. Benchmarks will be set relative to high-performing industry peers or competitors who produce the same or similar products.
Right now, under the SGER, these same facilities must make annual reductions in greenhouse gas emissions by a certain percentage based on a facility-specific historical baseline. This means that 2 facilities in the same sector, which produce a similar or identical product, will have different emissions reduction obligations.
Under the new rules, these 2 facilities' emissions performance would be compared using the same benchmark based on the product that they make.
What changes with an output-based allocation system
Under the output-based allocation system, a facility will receive performance credits if their greenhouse gas emissions are less than the amount freely permitted.
If their emissions are above the amount freely permitted, they will be required take one or more of the following actions to bring the facility into compliance:
- make improvements at their facility to reduce emissions intensity
- use emission performance credits generated at facilities that achieve more than the required reductions
- purchase Alberta-based carbon offset credits
- contribute to Alberta's Climate Change and Emissions Management Fund
Principles of the output-based allocation system
We're currently working with industry, academics, and non-governmental organizations to ensure implications of any proposed policy details are fully understood.
The engagement process is framed with the following principles:
- Encourage meaningful emissions reductions
- The transition away from facility-specific regulations to a carbon competitiveness approach will ensure that incentives exist for continuous improvement. This includes consideration of the current system and anticipated future impacts to ensure further reductions are achieved.
- Minimize carbon leakage and competitiveness risks
- The allocation approach will take into account sector trade-exposure and emission intensive industries to minimize competitiveness impacts that could shift activity to other locations with no real global emissions reductions (emissions leakage).
- Emission allocations will work for all facility configurations in Alberta. The allocations will be designed to enable continuous learning and adaptation to new information, new types of industries and facility configuration, and the changing policy landscape outside of Alberta.
- Compliance flexibility will be provided to allow regulated entities to choose the most appropriate and efficient compliance pathway.
- Allocations will be set and reviewed based on a structured process that provides predictable outcomes for all regulated parties and stakeholders. Decisions on final emissions allocations will be made as soon as possible. This will allow responsible parties to maximize emissions reductions, minimize costs, and ensure compliance with all requirements when they come into effect in 2018.
- Principles and decision-making processes will apply consistently within and across sectors and products. Any consideration for exceptional circumstances will be made consistently for all facilities in a similar situation.
- Similar industrial processes will receive similar treatment regardless of facility or sector. Information will be shared equally to all parties to avoid creating commercial advantage. Treatment of comparable facilities in other jurisdictions with greenhouse gas policies will be taken into consideration when setting and reviewing emissions allocations.
- Allocations will be developed and implemented consistent with policy direction set out in Alberta's Climate Leadership Plan including the carbon levy on combustion emissions for transport and heating fuels, the reduction of emissions from coal transition, and the oil sands limit, as examples.
- Administratively simple
- The system will be designed to ensure administrative ease in safeguarding compliance and facilitating ongoing improvements.
- Data used to establish output-based allocations and data used to report annually against output-based allocations should be verifiable. Data will be subject to annual third party verification as a part of implementation of the emissions allocation approach.
- All greenhouse gas quantification methodologies to support the development, verification and review of the output-based allocations will be transparent, including emissions and product data. Where necessary, confidentiality will be protected. Summary data, assumptions, information and records of decisions will be shared as appropriate. The final allocations, and any associated regulations, standards, and other policies will be publicly available.
Stakeholders from various industries, environmental organizations, academia and think tanks were invited to participate in a series of technical workshops. These sessions were completed in March 2017.
Albertans and stakeholders were also able to share their feedback through an online questionnaire, which closed March 31.
Thank you for participating, we are currently reviewing your input.
The discussion document framed the discussion around options for the development, transition and implementation of an output-based allocation system.