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Hot Air

TIER is Alberta's world-class carbon reduction sham

By Jeff Gailus

When Prime Minister Justin Trudeau stood at the podium at COP26 and announced that Canada would cap carbon emissions from oil and gas production and ensure they decrease over time, Alberta Premier Jason Kenney and his trusty environment minister, Jason Nixon, were nowhere to be seen. Instead of attending the latest UN Conference of the Parties in Glasgow, where they might have learned a thing or two about how world leaders are planning to wean us off fossil fuels over the next 30 years, the architects of Alberta’s climate policy were at home resting on their laurels.

“Alberta is already a leader in reducing emissions,” Kenney tweeted in response, using the obligatory muscled bicep emoji for effect.

Is Kenney correct about Alberta’s leadership? Or is he playing fast and loose with the truth about Alberta’s commitment to reducing greenhouse gas (GHG) emissions? As usual, it’s the latter.

When the UCP defeated the NDP in Alberta’s 2019 election, Kenney’s first order of business was to kill the province’s consumer carbon tax. He then tore up the Climate Change Leadership Plan of which it was a part. The federal government subsequently imposed its own consumer carbon tax on Alberta, which Kenney fought—unsuccessfully—in court. Clearly he hated the notion of government attempting to limit fossil fuel pollution, and he would have none of it.

If ever a place needed to reduce carbon emissions, it’s Alberta. This province has huge CO2 emissions—276 Mt in 2019, up 17 per cent from 2005. At 64.3 tonnes per capita, we have one of the highest rates in the world. Ever-increasing emissions from the oil and gas sector—where roughly 50 per cent of Alberta’s emissions originate—are the main reason Canada is the worst climate performer of all G7 nations. Of Canada’s 100 heaviest GHG emitters, 42 are in Alberta, as are seven of the top 10, five of them oil sands projects. Together, these 42 facilities and factories annually spew an estimated 119 Mt of carbon pollution. And now credible published research is showing that oil sands emissions are likely far higher than is being reported by the industry.

Even Kenney hasn’t been able to ignore this dirty reality. He is determined, however, to control how much Alberta’s largest polluters pay for their carbon emission sins, and what this money is redirected to. To that end, his government’s Technology Innovation and Emissions Reduction (TIER) regulation came into effect January 1, 2020. TIER is actually the province’s third iteration of what’s called an “output-based pricing mechanism” for large emitters—fancy talk for people, like Kenney, who don’t want to utter the words “carbon tax.”

It would be easy to assume Alberta’s carbon tax on large emitters represents a significant effort to fight climate change. Kenney himself calls it “our homegrown, made-in-Alberta approach to lowering carbon emissions.” But on closer inspection TIER is a sham.

While 42.3 Mt over two decades is a lot of carbon to keep out of the atmosphere, it’s roughly 15 per cent of what Alberta spews every year.

TIER covers about 60 per cent of Alberta’s carbon emissions and applies to about 120 facilities, including oil sands operations, gas producers, chemical manufacturers, fertilizer plants, cement factories and power plants, each of which annually emits at least 100,000 tonnes of GHGs. The tax is supposed to provide an incentive to industry to decrease carbon pollution, without imposing costs so onerous that companies pull up stakes and move to jurisdictions with weaker climate policies. Revenues from the tax are then supposed to go into a fund that supports research and development into technologies that reduce carbon emissions.

Incredibly, given Conservative politicians’ historical aversion to carbon pricing, Alberta was the first jurisdiction in North America to implement a carbon tax on large emitters. Ed Stelmach’s PC government implemented the Specified Gas Emitters Regulation, or SGER, in 2007 (a $15/tonne tax on emissions above 100,000 tonnes). Rachel Notley’s NDP government replaced that with the beefed up ($20/tonne, then $30/tonne) Carbon Competitiveness Incentive Regulation, or CCIR, in 2017.

Kenney’s government, in turn, tweaked CCIR to come up with its new and supposedly improved TIER program that is “at the core of emissions management in Alberta” and a means of reducing the cost to industry. “It’s anticipated that by transitioning to TIER, industry will save over $330-million in avoided compliance cost in 2020,” a government briefing boasted at the time. The TIER webpage adds that amendments in July 2020 would “make the regulatory process more cost-effective and put Alberta industries on a level playing field with their peers without affecting emissions reductions.”

Like its predecessors, TIER created a cost for polluting: a $30 per tonne price on carbon emitted (above a certain emissions intensity target, which is different for each plant, factory or facility). On the face of it, it’s relatively simple: If your emissions are under the target, you earn carbon credits. If your emissions exceed the target by, say, 5,000 tonnes, you have three options: buy credits from a less-polluting facility, buy carbon offsets, or pay $150,000 into the province’s TIER fund.

But TIER has deficiencies. The UCP government did increase the carbon price to $40 per tonne in 2021 to comply with a federal backstop, but its regulations don’t oblige the province to increase the price annually as the federal government’s carbon tax regime does. Gradually increasing carbon taxes and lowering emissions caps are key to effective climate policy, the goal of which is to decrease and virtually eliminate the production and combustion of fossil fuels. The feds, for example, plan to raise the price of carbon emissions to $170 per tonne by 2030.

Another weakness in Kenney’s version of a carbon tax is that most emissions targets are no longer based on industry-wide performance, where carbon polluters are measured against their peers, and the least-polluting facilities actually stand to make money. Instead, TIER’s targets will be set at 10 per cent less than an average of a facility’s 2013–2015 emissions, which means targets are easier to meet for the worst polluters, and better performers pay more tax than they would have under the CCIR.

Worse, TIER allows the minister to grant a “cost-containment designation” for large emitters who claim to be suffering “economic hardship.” Between 2018 and 2020, the Alberta government allowed six of Alberta’s most carbon-intensive oil sands facilities to pay far less in carbon taxes than they otherwise would have. CNRL, which made $2.1-billion in adjusted profit for the third quarter of 2021 alone, received this subsidy for its Peace River facility and its Hays gas plant. How much money did CNRL save? Alberta Environment spokesperson Scott McMillan says that detail is a secret.

“This new policy is a step backwards, falling halfway between the [CCIR] and the previous system [SGER],” wrote Pembina Institute analyst Jan Gorski, after the Kenney government announced TIER. “With individual benchmarks, TIER will effectively punish progressive companies that have already taken action to reduce emissions, while rewarding those that have not and may have easier, cheaper reduction opportunities.”

In short, Kenney’s large-emitter carbon tax creates a perverse incentive that saves companies hundreds of millions of dollars and weakens their motivation to reduce pollution. It then lacks the long-term market signals—regular, predictable rate increases—that the federal carbon tax uses to incentivize companies to change. TIER is weaker than what we already had, concluded Gorski, “and creates uncertainty at a time when we need the exact opposite.”

A few hours after Trudeau made his announcement in Glasgow, Premier Kenney arrived at Capital Power’s Genesee facility just southwest of Edmonton. From a podium of his own, with Canada’s most carbon-polluting power plant behind him, Kenney chastised the federal government for failing to meet its “improvised targets of ever-increasing ambition.”

“It’s time,” he said, “for, yes, ambition, but also real, concrete progress…. Where the difference is going to be made is in the industrial application of technologies… particularly a massive upscaling of carbon capture, utilization and storage technology.”

Which brings us to how TIER revenues are spent. As it stands today, most of Alberta’s biggest carbon polluters see TIER’s carbon tax as just another cost of doing business, and opt to pay into the fund rather than buy carbon offsets or invest in new technologies to make their operations more efficient. As a result, since 2007 Alberta’s various carbon-pricing schemes have raised more than $2.6-billion in revenue. In 2020 alone the province collected $548-million by taxing carbon pollution from large emitters.

Under CCIR the annual windfall was put in a fund that was invested “only for purposes related to reducing emissions of specified gases or supporting Alberta’s ability to adapt to climate change.” Kenney, in creating the TIER fund, declared the revenues would now “improve oil sands extraction methods and research and investment in carbon capture, utilization and storage.”

In September 2020 Environment Minister Jason Nixon announced the UCP government would spend the $750-million then remaining in the TIER fund. He reinforced that the money now had a different purpose. “At the end of the day,” he said, “it is industry money that they have contributed to that fund. Our commitment to the industry was that we would use it to be able to help advance the industry.”

On that November day in 2021, facing a stiff wind at Genesee Lake, Kenney announced he would allocate a further $176-million from the TIER fund, this time to 16 projects. “We believe the path forward to address the climate challenge is not punishing people for living normal lives but rather investing in technology that can make a huge difference,” he said. “We aren’t just talking about reducing emissions. We are acting to actually reduce emissions.”

Called the Shovel-Ready Challenge, Kenney’s 2021 announcement involves five projects in the oil and gas industry, six from the low-carbon energy sector and five in bio-industry and waste-to-value. More than $34-million is going to hydrogen-based projects, including CP’s purchase of two hydrogen-powered locomotives ($15-million), Edmonton’s two new hydrogen-powered transit buses ($4.6-million), and a blue-hydrogen production facility in Edmonton ($15-million) that aims to use hydrogen as a fuel source, capturing 95 per cent of the resulting carbon emissions and sequestering them underground.

Another project will be at Genesee itself. The plant is already in the process of converting Units 1 and 2 from coal to natural gas, reducing its carbon emissions by an estimated 60 per cent. Some $15-million in TIER funding will be given to Capital Power to help the company capture emissions from Unit 3 and turn them into carbon nanotubes, which are stronger and lighter than aluminum—and a valuable commodity.

The 16 “shovel-ready” winners were selected from 281 applications and reviewed by a team of experts appointed by Emissions Reduction Alberta (ERA), a not-for-profit corporation funded by TIER revenues. The expert panel, overseen by a “fairness monitor,” then provided recommendations to the ERA board of directors, headed by former Canadian Association of Petroleum Producers president and CEO Dave Collyer, which made the final call.

“Together, we see the results of our homegrown, made-in-Alberta approach to lowering carbon emissions: practical innovations that protect the environment in tangible and measurable ways.” Kenney said. “Technology, not taxes,” he added.

The environmental upside of Kenney’s non-taxing, homegrown, technology-infused shovel-ready challenge, in terms of reducing emissions, is estimated to be 6.8 Mt of GHGs by 2030. If you didn’t know better, this might sound impressive. But it’s very questionable whether Kenney’s “made-in-Alberta” approach will have a tangible impact.

ERA has been the primary mechanism by which SGER/CCIR/TIER money is doled out to industrial projects. The corporation says that since 2009 it has given $821-million in carbon tax revenues to 221 projects worth a total of $6.6-billion. It estimates these will reduce GHG emissions by 42.3 Mt by 2030.

TIER, most egregiously, funds Kenney’s “war room.” In 2020 $20-million in carbon tax revenue was used to promote Alberta oil and gas.

Of these 221 projects, 101 are complete, 89 are ongoing and 23 have just signed agreements, including the 16 announced last November by Kenney. Three projects were about climate adaptation; eight focused on oil sands innovation; 29 involved low-emitting electricity systems; 54 were concerned with industrial process efficiency; and 61 looked at food, fibre and bioindustries. At 80 projects the main goal was how to produce “cleaner” oil and gas. Almost all of these projects focus on how to reduce emission intensities of various industrial processes.

There is, however, no way to confirm ERA’s GHG reduction estimates. No accompanying reports or backgrounders outline the assumptions and calculations made to reach ERA’s 42.3 Mt conclusion, and no independent source corroborates the findings.

Neither is the conclusion contextualized in the broader climate picture. While 42.3 Mt would be a lot of carbon to keep out of the atmosphere, it’s only about 15 per cent of what Alberta already spews into the atmosphere every single year. And when this “achievement” is spread out over two decades, at an apparent cost of $1,560 per tonne, it doesn’t seem quite as “real” and “concrete” as Kenney would have us believe, especially if Alberta’s carbon pollution continues to increase as the oil sands expand.

Kim Siever, an independent journalist in Lethbridge, helped put these numbers into perspective. He calculated that Kenney’s 16 shovel-ready projects would, under the most generous of assumptions, reduce Alberta’s overall carbon emissions between now and 2030 by just 0.31 per cent. If we want to be even more generous, we can compare the predicted reductions to just pollution from the large emitters regulated by and paying into TIER, rather than Alberta’s total emissions. These projects (again, under the most generous assumption) would reduce industrial carbon emissions by a whopping—wait for it—0.57 per cent over eight years. And all of this assumes GHG emissions remain at 2019’s level of 275 Mt CO2e out to 2030. It’s far more likely, however, that Alberta’s emissions will grow significantly, making the reductions even more minuscule.

A similar analysis of ERA’s overarching claims produces similar results. If its estimate of carbon reductions is accurate, ERA’s $821-million investment will reduce Alberta’s cumulative 2009–2030 carbon emissions by less than three-quarters of a per cent (0.72). In other words, the UCP’s “homegrown, made-in-Alberta approach to lowering carbon emissions” is so ineffective as to be irrelevant.

And some of the projects being funded are questionable in terms of their climate benefits. The five oil and gas projects getting $52.3-million pledge mostly small, incremental improvements in “carbon intensity” at some unspecified point in the future, while in the meantime growing production of a fossil fuel—oil sands crude—that’s among the world’s most expensive and carbon-intensive. Kenney can tweet as many flexing bicep emojis as he likes, but Alberta’s oil will never be cost or carbon competitive in a world committed to keeping warming to less than 2°C.

Hydrogen may not be the miracle cure it’s made out to be, either. Green hydrogen uses zero-carbon electricity to split water molecules into hydrogen and oxygen; this makes it very clean but also too expensive to be viable, likely for decades. Blue hydrogen, on the other hand—the kind TIER money is supporting—is made by combining steam and fossil fuels, usually natural gas, and heating the mixture to around 800°C. The result is hydrogen and CO2, the latter of which is captured and stored underground. It’s not a particularly clean process. A recent analysis of the GHG lifecycle emissions of blue hydrogen, the first of its kind, found that the methane emissions associated with producing hydrogen and storing the CO2 waste make blue hydrogen 20 per cent more carbon intensive than simply burning natural gas.

Carbon capture, utilization and storage (CCS) technology, for which Kenney and the oil sands industry have asked Ottawa to provide an additional $30-billion in subsidies, may prove useful in some contexts. But will it be a “game changer”? It’s very expensive, for starters, while any methane leakage renders CCS pointless, since methane is so much more noxious for the climate than CO₂. Meanwhile, reality is that 70 per cent of the carbon pollution associated with oil and gas occurs when fossil fuels are burned in our cars and homes, where emissions can neither be captured nor sequestered.

The tenor of discussions at COP26—climate change is an existential crisis—is at odds with Kenney’s vision for using TIER revenues to reduce pollution by irrelevant amounts (if at all, once more oil and gas production is factored in) and to extend the life of Canada’s most polluting industry. As Clean Energy Canada’s Sarah Petrevan recently told National Observer, no credible pathway to net-zero by 2050 allows for oil and gas production to still exist. Industries such as cement or steelmaking, however, are the foundations on which the economy is built, making them critical beyond 2050. “Clean electricity, in the future, becomes a fuel source for those industrial processes,” said Petrevan.

But concerns are growing about the prospect of giving TIER revenues to these industries too. Some Edmontonians are worried about Kenney’s “shovel-ready” $11.7-million investment in Lehigh Hanson’s Portland cement factory in the city’s northeast. The project enables the plant to replace half of the coal and natural gas it uses in its kilns with “alternative and low-carbon” fuels. Sadly these include vast quantities of plastic waste and of tire fibre, composed of natural rubber and plastic polymers. A recent Reuters investigation into the growing number of cement plants around the world that use plastics as fuel reported that the US Environmental Protection Agency sees no significant climate benefit from substituting plastic for coal, and that burning this waste can create harmful air pollution.

Conrad Nobert, board president of Edmonton’s Tomorrow Foundation for a Sustainable Future, tweeted: “We’re giving a highly profitable international corporation $11.7-million… And it’s not even to implement actually proven cement carbon-reduction technologies.” He added, quoting another Twitter user, “It’s like moving the landfill from the ground to the sky.” At the very least, wrote Laurie Adkin, a U of A political scientist, “ERA should provide… more information about the process that Lehigh will use and how ERA assessed its environmental safety.”

Another questionable use of TIER funds has nothing to do with technology or innovation or even carbon. When the UCP government brought in TIER, it added section 10(4), which allows money to be removed from the fund and used for any purpose. In practical terms, the first $100-million and 50 per cent of remaining revenues paid into the TIER fund must be spent on emission-reduction efforts, however meagre they might be. The rest can be used for anything, including—sadly, not hypothetically—$1.5-billion for a doomed oil pipeline. Of the $548-million polluters paid into the fund in 2020, only $324-million must be invested in reducing pollution.

Most egregiously, TIER is funding the pro-fossil-fuel propaganda spewing from Kenney’s “war room.” Indeed, the UCP government in 2021 spent $20-million of TIER funds on the “Canadian Energy Centre,” making it the single biggest recipient of TIER money that year. “The [war room] is using that money to hire a public relations and advertising agency to promote Alberta’s oil and gas industry,” wrote Drew Yewchuk, a lawyer with the U of C’s Public Interest Law Clinic, in a September 2021 blogpost. “In short: the money taken from carbon-intensive industry for the supposed purpose of reducing emissions and controlling climate change is being spent to build a ‘social movement’ …favouring more use of Albertan oil and gas, and thereby the release of more carbon emissions.”

Yewchuk points out that this “shockingly bad regulatory approach” defeats the very purpose of the TIER program, and is the “sort of awful regulation that results from a regulatory system designed and implemented in tight consultation with industry.”

Perhaps none of this should surprise us. In her 2020 book Fossilized, Angela Carter, political science professor at University of Waterloo, explores the effectiveness of environmental policy in Canada’s petro-provinces. Her results are disheartening. Even under the Notley government, Alberta’s “climate policy served to pre-empt federal policy and shield tar sands extraction while bolstering social licence to expand development and protect access to markets.” “Like [Upton] Sinclair’s salaried man,” Carter writes, “these provinces will continue to be blinded by the financial benefits of oil and thus fail not only to understand environmental risks but to comprehend the long-term economic danger of being left behind as global energy systems turn away from oil.”

Kenney’s token carbon tax might ultimately worsen prospects for the oil sands industry and the politicians, Kenney and Nixon among them, who can’t see beyond it. If this “made in Alberta approach” doesn’t meet federal minimum requirements for capping carbon pollution from oil and gas production and ensuring it decreases, the Trudeau government may well step in and implement its stronger backstop.

Thus Kenney’s claims of climate leadership are, by any measure, a sham. What we need, tweeted Nigel Bankes, a retired U of C law professor, are laws that set targets consistent with Canada’s commitments under the Paris Agreement, a strategy to meet them out to net-zero in 2050 and annual reporting on progress. Alberta’s current approach “does none of these things,” he wrote, “and until we have real carbon accountability legislation nobody will take us seriously.”

Jeff Gailus is an Alberta expat now living in Montana and the author of Little Black Lies (RMB).

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