Saskatchewan Battles One-Size Fits All Carbon Tax

Scott Moe, Saskatchewan’s Premier, does not support the Federal Carbon Pricing Backstop.

In a joint statement released with Ontario Premier, Doug Ford, the two agreed to join forces and exhaust all tools to challenge the federal government’s authority to impose a carbon tax on the provinces. The movement continues to grow as other provinces reject the federal plan and threaten to sue.

The ongoing battle between Ottawa and the provinces is a well-covered topic in the media. A quick Google search for news pertaining to carbon tax will result in a long list of hard hitting and provoking headlines.

However, this certainly is not the only story playing out in Saskatchewan.

Prairie Resilience: Made-in-Saskatchewan Climate Change Strategy

In December 2017, the Government of Saskatchewan released Prairie Resilience: A Made in Saskatchewan Climate Change Strategy, which set out commitments related to reducing greenhouse gas (GHG) emissions from the upstream oil and gas industry.

The strategy is designed to make Saskatchewan more resilient to the climatic, economic and policy impacts of climate change. It also creates a made-in-Saskatchewan approach to climate regulation that responds to concerns of businesses and residents facing the Federal Carbon Pricing Backstop.

By focusing on the principles of readiness and resilience, the strategy aims to reduce GHG emissions and help Saskatchewan adapt to the effects of climate change – without a carbon tax.

Since releasing Prairie Resilience in December 2017, the government has proclaimed portions of The Management and Reduction of Greenhouse Gases Act (MRGHG), which enables reporting, verification and compliance powers, and will allow drafting of new regulations and standards to further support Saskatchewan’s comprehensive approach to climate change.

The proclamation included The Management and Reduction of Greenhouse Gases (General and Electricity Producer) Regulations, which took effect January 1, 2018. This is the next step in an equivalency agreement for provincial coal-fired emissions regulation.

In August 2017, the government gazetted The Management and Reduction of Greenhouse Gases (General and Reporting) Regulations, which are now enforced as of September 1, 2018.

Finally, draft versions of The Oil and Gas Emissions Management Regulation were released in June 2018.

These steps work towards implementation of the provincial climate change strategy on January 1, 2019.

Ministry of Environment: MRGHG (General and Reporting) Regulations

The MRGHG introduces new regulations for emissions reporting effective September 1, 2018

The Provincial GHG reporting program is aligned with the Federal Greenhouse Gas Reporting Program (GHGRP), which sets the reporting threshold at 10,000 tonnes of CO2e/yr.

Similar to the GHGRP, reporting methodologies are outlined in a standard and Environment and Climate Change Canada’s (ECCC) Single Window Information Manager (SWIM) will be used for online reporting.

Ministry of Environment: MRGHG (Compliance) Regulations

In a recent release, the government announced new sector-specific, output-based, facility-level performance standards (OBPS) and compliance options, which will apply to facilities emitting >25,000 tonnes CO2e/yr (i.e. regulated emitters).

The MRGHG will allow regulated emitters to meet OBPS in ways best suited to their business. Compliance options include:

• Meet the performance standard;
• Make a payment into provincial technology fund;
• Use a best performance credit, generated by a regulated facility reducing emissions beyond performance standard; and/or
• Apply an offset credit, a verifiable reduction in emissions made by a non-regulated entity (e.g., in agriculture or forestry).

New regulations are expected to come into force January 1, 2019.

Ministry of Energy and Resources: OGEMR

As follow up to the Prairie Resilience Strategy, the Ministry of Energy and Resources (ER) has released new regulations, known as The Oil and Gas Emissions Management Regulations (OGEMR), which are designed to achieve a 40 to 45% province-wide reduction in GHG emissions from the upstream oil and gas industry by 2025 relative to 2015 emission levels.

The Regulations focus on associated gas from oil wells considered to be the largest source of GHG emissions from Saskatchewan’s upstream oil and gas industry.

ER’s goal is to have these regulations presented for consideration by the Lieutenant Governor in Council (LGC) in the fall of 2018 with the aim of the new regulations coming into force in January of 2019.

The proposed regulatory approach is designed to:

• Deliver measurable reductions from venting and flaring based on existing production reporting processes and systems;
• Recognize and reward the environmental benefits of reducing both flaring and venting in terms of achieving provincial emissions targets;
• Provide each oil and gas operator the ability to efficiently prioritize emission reduction investments;
• Support the adoption of innovative emissions reduction technologies; and
• Firmly establish provincial regulatory oversight of emissions from the oil and gas industry

Key features of the approach include:

• Limiting the application of the regulation to only companies with aggregate potential total emissions of greater than 50,000 tonnes of CO2e per year (based on flare and venting volumes only);
• Adopting a five year phase-in of emission reductions starting in 2020 with full reduction targets being met by the end of 2025;
• Establishing yearly specific emissions intensity limits assigned by production class based on region specific emissions reduction opportunities starting in 2020 and extending to 2030;
• Aggregating emissions limits at a company level to allow companies the flexibility to determine how to most efficiently prioritize emission reduction investments;
• Requiring operators subject to the regulations to submit company specific-plans by 2019 on how they intend to reach their intensity limits; and
• Compliance mechanisms.

The Prairie Problem

What does 2019 hold for Saskatchewan based upstream oil and gas producers?

The GoC’s guidance on the pan-Canadian carbon pollution pricing benchmark states jurisdictions can implement: (i) an explicit price-based system (a carbon tax like British Columbia’s, or a hybrid system comprised of a carbon levy on fuels and performance-based emissions trading system like in Alberta); or (ii) a cap-and-trade system (e.g., Ontario and Quebec).

As the MRGHG and OGEMR are not expected to include a carbon levy on fuels, they do not appear to meet the Federal Benchmark. If this is the case, Saskatchewan producers may find themselves in a jurisdiction regulated by the Federal Backstop. This would mean carbon levy payments, or complying with the output-based pricing system.

On the other hand, should the provinces win a lawsuit against the capital, or some legal action delay the onset of the Backstop, regulatory compliance may mean satisfying the provincial MRGHG and/or the OGEMR.

Is there also a scenario where Saskatchewan producers face both Federal and Provincial legislation at the same time? You bet.  The backstop can be used to supplement (or “top-up”) systems that do not fully meet the benchmark.