Amendments to the TIER Regulation - Direct Investment

Late last week, the Lieutenant Governor in Council made amendments to the Technology Innovation and Emissions Reduction (TIER) regulation, following recommendations from the Canadian Minister of Environment and Protected Areas. These amendments were detailed in an appendix accompanying the updated TIER regulation.

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Most amendments provide foundational details regarding the direct investment compliance pathway, now referred to as “Investment Credits.” This update follows the initial proposal made in September. While the amendments clarify essential elements such as preliminary credit calculations, the definition of reactivated credits, and the effective date for investments, critical regulatory components remain outstanding. Specifically, the Standard for Direct Investment has not yet been published by the department, which is expected to outline the criteria for eligible projects. 

Investment and Reactivated Credits

Sections 20.3 and 20.4 of the regulation introduce two new credit categories: investment and reactivated credits. These credits can be used for compliance under TIER alongside existing emission performance credits (EPCs), emission offsets, and sequestration credits, and are subject to the combined maximum credit usage percentage (set at 80% for 2025 and 90% for 2026). However, investment credits are non-transferable and may only be used by the facility that generated them.

Investment credits are generated exclusively through the direct investment pathway. Each investment credit represents one tonne of CO₂e and is calculated based on eligible monetary investment in a qualified project. The regulation outlines specific eligibility criteria, including:

• The investment must occur from January 1, 2025 onwards
• Investments cannot be made at a facility for which a cost containment designation is in effect
• Investments must not include funds granted by a government, any government-funded organization, or the TIER Fund
• Investments recoverable through an investment tax credit (ITC) are excluded

Furthermore, the amendments formally defined an “eligible investment project” as either a pre-approved project or a project approved by the director upon application by a regulated facility. Notably, the regulation listed no pre-approved projects, referring instead to Part 1 of the Standard for Direct Investment. Consequently, uncertainty remains regarding which project types and capital investments will be eligible. Additionally, the government retains the authority to update the list periodically.

To generate investment credits for a given year, a facility must submit audited investment statements on or before June 30 of the following year. The quantity of investment credits is calculated using the following formula:

IC = EI / FCA

Where EI is the eligible monetary investment (made in CAD) and FCA is the fund credit amount for that compliance year. For the 2025 compliance year, facilities must invest CAD 95 into eligible projects to generate one investment credit (representing one tonne of CO₂e), mirroring the value of emission offsets and EPCs.

Investment credits are valid for a single use within a five-year window, commencing in the year the eligible investment is made. Please note that these credits are only eligible for application starting with the 2026 compliance year.

The introduction of investment credits provides an additional compliance pathway for facilities to meet emissions obligations. While this new pathway could reduce long-term demand for eligible offsets and EPCs, the precise market impact is difficult to project without granular details on project eligibility and quantification. If the project list aligns with the province’s goal to drive capital into CCUS and other reduction technologies, it could catalyze meaningful activity within the decarbonization sector. These developments must be viewed within the context of the wider Canada-Alberta MOU, which intends to implement a minimum effective credit price, refine sector-specific stringency factors, and the 2026 federal benchmark review  that aims to strengthen and harmonize the programs.

The amendments also introduced reactivated credits. If a facility submits an audited investment statement on or before March 31 of the year following the eligible investment (three months prior to the compliance deadline), it may elect to use those investment credits to reactivate emission offsets, sequestration credits, or EPCs. Reactivated credits are defined as credits previously retired toward a facility’s true-up obligation for any of the three compliance years immediately preceding the investment year. However, the reactivated credits cannot be earlier than the 2025 compliance year. 

These reactivated credits would reintroduce supply into an already long market, which could prolong the drawdown of the surplus bank. However, setting 2025 as the earliest eligible compliance year ensures no impact on the current market credit bank. This mechanism aligns with a period of anticipated tighter stringency for large emitting sectors, details of which are expected in the agreement on industrial carbon pricing on or before April 1, 2026.

Opt-Out Deadline Amendment

The deadline for an opted-in facility to apply to opt-out of the program has been amended to December 31 of the year preceding the effective compliance year. The previous deadline was September 1; however, in the September announcement, the province indicated proposed amendments allowing facilities to opt out of TIER or report on a partial year. This change necessitated an extension of the application deadline pending the release of regulatory updates. Despite these earlier indications, no further information was released regarding partial or full-year opt-out applications, meaning the current regulation continues to require full-year compliance for 2025 and subsequent years.

ClearBlue will continue to monitor these developments and update clients as new information becomes available on industrial carbon pricing equivalency and the proposed TIER amendments, including the direct investment pathway. Contact us to discuss how ClearBlue's insights can benefit your carbon strategy.