On May 24, 2016, Alberta tabled Bill 20, the Climate Leadership Implementation Act ("Bill"). The Bill proposes two new statutes: the Climate Leadership Act, establishing a carbon levy for fuel consumption, and the Energy Efficiency Alberta Act, establishing a Crown corporation with a mandate to design and deliver renewable energy and energy conservation systems. The Bill also proposes amendments to Alberta's corporate and personal income tax statutes by reducing the small business tax rate from 3% to 2%, to help offset the impacts of the new carbon levy.
As a next step, Alberta is expected to introduce legislation covering other policy initiatives in the Climate Leadership Plan, including legislation to cap oil sands emissions, reduce methane emissions and eliminate emissions from coal-fired electricity generation. For now, the Specified Gas Emitters Regulation, which came into force in 2007 and establishes an intensity-based approach to the regulation of carbon emissions, remains in full force and effect.
The Bill, and more specifically, the proposed Climate Leadership Act, will have far-reaching implications on the oil and gas sector. Until the Bill receives royal assent and the regulations are released, many details remain unknown - but here is what we know right now.
Application of the Levy
Beginning on January 1, 2017, the carbon levy will be included in the price of all fuels that emit greenhouse gases when combusted. The levy applies to "direct remitters", a broadly defined term that includes persons who sell or remove fuel from a refinery or terminal, persons who import fuel into Alberta for sale or resale, and persons who sell or remove fuel from an oil production site or an oil sands processing site.
The proposed Climate Leadership Act establishes carbon levy rates based on fuel type. These rates are set on the basis of $20 per tonne of greenhouse gas in 2017, rising to $30 per tonne in 2018 and translate to a carbon levy expressed as a price per volume of fuel. For example, the 2017 rates include: $1.1011 /GJ for natural gas, 5.35 ¢/L for diesel and 4.49 ¢/L for gasoline.
Assessment and Enforcement
The proposed Climate Leadership Act has far-reaching application and provides the Minister with sweeping powers regarding the assessment and enforcement of levies. For example, the Act includes:
- a registration requirement for any person who engages in activity to which levies apply;
- provisions empowering the Minister to refuse, cancel and suspend registration where a person has contravened the Act or any law in Alberta or another jurisdiction that governs the payment of a carbon levy;
- provisions granting wide powers to assist government in the collection of unpaid levies;
- provisions covering the liability of directors and others for a corporation's failure to remit levies;
- provisions granting powers to government officials to search vehicles, property and businesses without a warrant for investigation and compliance purposes; and
- provisions empowering the Minister to impose penalties, including fines and imprisonment for nonpayment of levies.
Exemptions to the Levy
The Climate Leadership Act sets out a number of exemptions to avoid levying the same fuel twice, as well as a number of exemptions relevant to the oil and gas industry. For example, the following circumstances are exempt from levies:
- fuel imports to Alberta for delivery to a refinery or terminal;
- fuel used in an industrial process as a raw material where it is not combusted;
- fuel used on-site, subject to the specified gas emitters regulations;
- fuel produced and consumed on-site by oil and gas producers until 2023; and
- fuel that is exported from Alberta.
Bill 20: Next Steps
The much anticipated legislative framework for Alberta's economy-wide carbon levy scheme has garnered attention from all sectors. Before coming into force, the Bill will be subject to the usual legislative processes and debate, and could be amended along the way. If passed in its current form, the Bill is anticipated to come into effect in early 2017.
Much of the on-the-ground operation of the Climate Leadership Act will require the promulgation of regulations, which will be developed after the Bill is passed. The regulations are expected to provide further guidance regarding the classification of specific fuel types, the timing of certain levy payments, specifics about exemptions, and classes of persons and property.
At this stage, there is little detail available to assess the application and financial impacts of the carbon levy regime on the oil and gas sector. The implications of the new regime will become more apparent once the Bill is passed, the regulations are released and the government tables legislation covering the other key policy initiatives from the Climate Leadership Plan.