The Canadian and Alberta Governments have recently signed the Canada-Alberta Memorandum of Understanding (MOU), an agreement that provides a framework for long-term collaboration benefiting the interests of both parties. The understanding focuses on the environmental sector and commits to achieve net-zero emissions by 2050, while prioritizing financial investment and boosting the oil and gas industry. Pillars and commitments include a focus on the Northwest Coast Oil Pipeline development to reduce reliance on US markets and secure access to Asian economies, and specific changes to greenhouse gas policy in within the province: including increased stringency on heavy emitters in the oil and gas, electricity, fertilizer and cement sectors.
Prior to the MOU, TIER has recently undergone Regulatory Amendments in which the Direct Investment Program (DIP) was introduced. The program will allow emitters to invest in eligible emissions reduction projects and receive Investment Credits (ICs) in return starting in 2026, the quantity of which is determined using the monetary investment rather than verified emissions reductions. ICs can be used through two avenues, either against current year compliance obligations at the federal carbon price, or through reactivating previously retired EPCs at their original value, which can be sold at the current market price.
The DIP puts TIER at odds with a provision in the MOU that Alberta will ensure a minimum effective carbon price of $130/credit. The introduction of the DIP will suppress credit prices further from the current $30/credit price, as the incentive to purchase EPCs or Offsets at market is greatly reduced by the option to comply through investment in your own facility. In addition, the federal program is currently under review by the ECCC with a proposed change being maintaining the carbon price signal across all markets. Alberta is likely the target of this change as TIER emitters currently see the lowest market prices in the country while making up over 50% of Canadian emissions. The aim to reach pricing equivalency and inflate the minimum effective price in Alberta to $130/credit are at odds with the implementation of DIP and raise questions surrounding the likelihood that the program remains in place.
Looking Forward
Several key updates are needed to determine the impact of the MOU and the future of carbon pricing in Alberta. The rules surrounding what portions of an investment cost are eligible for a return under DIP remain to be revealed, and questions are raised around how a minimum effective carbon price - both at a federal and provincial level - will be calculated, and whether this might involve a raised floor price or changes to credit purchasing mechanisms. While $130/credit price was agreed upon in the MOU, timing of when this target price must be reached remains to be answered. Current speculation is that the combination of the ECCC updates and the MOU reduce the likelihood the DIP will remain in effect, and significant intervention in the Alberta market will be needed to reach the target carbon price.
ClearBlue is actively monitoring these developments, for more information about ClearBlue’s advisory services or market intelligence coverage, please contact us.