Greenhouse gas emissions legislation in Alberta and its application to agribusiness and agTech

July 5, 2021

Introduction

The relationship between the agribusiness industry and climate change is multifaceted. The industry is itself highly vulnerable to climate change effects, and yet it has capabilities to mitigate these risks through technological innovation and adaptation. While the physical impact associated with climate change poses a multitude of risks, climate change is also driving changes in law, shifting policy and altering the regulatory regime that affects the industry and AgTech companies. While there are difficulties associated with these changes, agribusiness and AgTech companies are also poised to benefit from the opportunities arising during Canada's transition to a sustainable future.

This article offers an overview of the current greenhouse gas (GHG) legislation operating in Alberta and provides an application of how this often-changing regime affects the agribusiness industry, and the possible opportunities it presents to the industry and AgTech companies. It will also provide insight into the recent proposed changes at the federal level that will apply to the agribusiness and AgTech sectors through integration of Alberta's provincial offset mechanism and federal benefits.

Overview of greenhouse gas legislation in Alberta

According to the 2015 Paris Agreement under the United Nations Framework Convention on Climate Change, Canada committed to reducing GHG emissions by 30% below 2005 levels by 2030. Based on the measures implemented in the Pan-Canadian Framework on Clean Growth and Climate Change, Canada's strengthened climate plan, and other provincial efforts that have taken place since that initial commitment, it is projected that Canada will meet, and possibly even exceed, this goal. However, this will not happen unless there is and continues to be meaningful action taken across all sectors of the economy. This meaningful action is driven by recent legislative changes that continue to shape GHG emissions legislation in Canada and in Alberta. In order to understand Alberta's GHG emissions scheme, the federal actions taken to reduce emissions must first be reviewed.

Federal legislation - The Greenhouse Gas Pollution Pricing Act (GGPPA)

The GGPPA was enacted by the Federal Government in 2018 to create a nation-wide pollution pricing system. The GGPPA operates in two parts that together create Canada's GHG pricing scheme. Part 1 of the GGPPA directly prices GHG emissions through a charge placed on fuel deliveries in specific provinces. Part 2 of the GGPPA applies to large emitters, known as covered facilities. It creates an output based pricing system (OBPS) in which an emissions limit is applied to a facility. If the facility exceeds the GHG emissions limit, it is required to provide compensation for such excess emissions. If the facility emits less than the prescribed limit, it is entitled to a credit.

The federal government has also recently published the draft Greenhouse Gas Offset Credit System Regulations, which will implement a new federal offset credit system under Part 2 of the GGPPA with the potential to expand the market for offsets created in Alberta. This system will implement protocols through which activities must be carried out in order to earn federal offset credits. One of these proposed protocols, the Enhanced Soil Organic Carbon protocol, would allow farmers to generate emissions offsets by utilizing sustainable agricultural land management activities that reduce GHG emissions and enhance soil carbon sequestration. Farmers would then be able to sell these offsets to large emitters subject to the federal OBPS. Participation in the federal offset credit system will be voluntary, but projects must satisfy the eligibility criteria set out in the proposed regulations in order to qualify.

Along with the creation of the federal offset system, it was announced that carbon offsets generated under several of Alberta's provincial emission offset quantification protocols under the Technology Innovation and Emissions Reduction (TIER) system will qualify as offsets that can be sold and used under the federal OBPS. The TIER system is described further below.

Alberta

Provinces have the ability to enact their own pollution pricing legislation, as long as this legislation meets federal standards. As a result of Alberta's current legislation, the direct fuel charge under Part 1 of the GGPPA applies, but the OBPS set out in Part 2 does not.

Alberta's TIER system, by way of the Technology Innovation and Emissions Reduction Regulation, operates in Alberta instead of the second aspect of the GGPPA. The TIER system applies to facilities that have emitted 100,000 tonnes or more of GHG in 2016 or a subsequent year. The TIER system also allows for facilities that do not meet this threshold to opt-in in the program. Facilities subject to TIER avoid federal carbon taxes on fuel consumption under Part 1 of the GGPPA.

The TIER system sets an output-based emission benchmark determining a facility's allowable emissions for the year. Facilities unable to remain within their allowable emission limit have three options:

1. submit emissions offsets
2. submit emissions credits
3. pay into the Technology Innovation and Emissions Reduction Fund

Emission offsets are created when a project voluntarily reduces their emissions. Emission credits may be issued to a facility in a year where its total emissions are less than the allowable emissions for that facility. A facility may also receive a credit by paying into the Fund. Currently, the fund credit price is CA$40 per tonne of GHG emission.

There is also a requirement for reporting GHG emissions set out under the Specified Gas Reporting Regulation in Alberta. The current threshold for reporting is 10,000 tonnes of GHG emissions.

Agribusiness industry and AgTech companies in Alberta

In Canada, 10% of GHG emissions are from crop and livestock production, excluding emissions from the use of fossil fuels or from fertilizer production. Conversely, agriculture helps slow climate change in various capacities, including storing or sequestering carbon in soil as organic matter. In Alberta, seven percent of all GHGs originate from agricultural sources - mainly from livestock production and cropping operations, and on a smaller scale, from on-farm fuel use. While companies will be subject to stringent emissions reductions and costs due to these emissions, they will also be privy to various incentives for emission-reducing behaviour and available funding for clean technology innovation. Some of these incentives are summarized below.

Exemption from Fuel Charge

There is an exemption from the federal fuel charge in place in Alberta for certain agricultural uses of fuel. The federal fuel charge applicable in Alberta is not payable if the delivery is to a farm and the fuel is a qualifying farming fuel. The GGPPA defines farmer as a 'person that carries on a farming business with a reasonable expectation of profit.' Qualifying farming fuel means 'a type of a fuel that is gasoline, light fuel oil or a prescribed type of fuel.' In order to qualify for this exemption, this fuel must be used for farming purposes.

TIER

Another way in which the Alberta GHG regulatory regime directly applies to the agribusiness sector is through the TIER program. Agribusinesses and AgTech companies with qualifying facilities may choose to opt in to the TIER system.

There are two ways in which a facility may opt in, the first being for facilities that compete directly with a facility to which the regulation already applies. A number of agribusiness sectors and products are already identified to be in direct competition with TIER regulated facilities. For example, facilities that produce crude and refined canola oil, biodiesel fuel, distilled liquor, malt, or grain mill products are eligible to opt in through this pathway. The second pathway is for facilities in an emission-intensive-trade-exposed sector (EITES). As well as meeting certain emissions intensity requirements, a facility wishing to opt-in via this pathway must also have had 10,000 tonnes or more direct GHG emissions in 2017 or a subsequent year, or be projected to have 10,000 tonnes or more direct GHG emissions in its third year of commercial operations. In July 2020, the definition of EITES was amended to include additional types of facilities that can voluntarily opt in to TIER, including facilities in the agriculture sector. AgTech companies possessing agricultural industrial facilities meeting TIER requirements can opt-in to the program, avoiding the federal fuel charge and potentially receiving significant savings in situations where the emission reduction opportunities for that facility are large and economically attractive.

Carbon Offsets

Agribusiness and AgTech companies may also be able to benefit from the emissions offset market in Alberta, as well as the proposed federal offset credit system. Offsets are created by following provincially approved procedures called 'protocols'. As of April 2021, 19 protocols had been approved by the Alberta Government. Protocols relevant to agriculture include Conservation Cropping, the Quantification Protocol for Nitrous Oxide Emission Reductions, the Quantification Protocol for Reducing Greenhouse Gas Emissions from Fed Cattle, and Selection for Low Residual Feed Intake Markers in Beef Cattle.

The Conservation Cropping protocol provides the opportunity for farmers to earn offsets by increasing soil carbon levels through no-till management and by reducing GHG emissions through lower fuel usage. While this protocol has been the most widely used in the agriculture industry, no new projects are being accepted and the ability to earn offsets expires on December 31, 2021. However, the recently proposed federal Enhanced Soil Organic Carbon protocol may be available to those projects eligible under the expiring Conservation Cropping protocol if the eligibility requirements are met.

The Quantification Protocol for Nitrous Oxide Emission Reductions is aimed at reducing on-farm emissions from nitrogen sources and fuel use associated with synthetic fertilizer, manure fertilizer and crop residue. This protocol is applicable to any farm that practices enhanced nitrogen management strategies to mitigate losses and emissions of nitrogen.

The Quantification Protocol for Reducing Greenhouse Gas Emissions from Fed Cattle addresses methane released from beef cattle during their digestive processes. Methane and nitrous oxide are also produced from manure storage and handling. This protocol enables users to measure and quantify GHG emission reductions by using different feeding strategies. Offsets can be generated by measurable emission reductions. A second protocol related to cattle is the Selection for Low Residual Feed Intake Markers in Beef Cattle. In this protocol, emissions are reduced through the selective breeding of cattle using a genetic marker for low residual feed intake, which results in cattle being more efficient in their feed utilization.

Credits created under certain protocols under the Alberta emission offset system will also now qualify for recognition under the federal OBPS, including the Quantification Protocol for Reducing Greenhouse Gas Emissions from Fed Cattle, and the Quantification Protocol for Selection for Low Residual Feed Intake Markers in Beef Cattle. Those intending to remit Alberta emission offset credits as recognized units for compensation under the federal OBPS must request to change the status of emission offset credits by June 30, 2021 in order to gain use of the credits by the regular rate-compensation deadline of December 15, 2021.

Conclusion

There are various interrelations between Alberta's GHG legislation and the agribusiness and AgTech sectors in both the requirements mandated and the opportunities posed. As the commitments to reduce GHG emissions continue to evolve both federally and provincially, so will the legislation regulating and driving our transition to a sustainable, low-carbon future. Tracking these legislative and policy changes and the effects such changes will have on agribusiness and AgTech companies is a priority now more than ever. Staying up to date will allow the industry to remain compliant, while driving innovation by promoting access to funding and incentives programs. Canada continues to rely on innovation in agribusiness and AgTech to assist in the transition to a sustainable future, which will help this industry thrive.

This client alert was co-authored by Bill Gilliland, Bennett Wong and Winta Asefaw, with the assistance of Kate Wiltse and Carly Kist.

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