New West Analysis: Alberta’s Emission Reduction and Energy Development Plan
We live in the most environmentally conscious age that we have ever known, so much so that now environment ministers substantially determine economic policy for both the federal and provincial governments, even in Alberta, Canada’s largest producer of oil and gas. On April 19th, Alberta Environment Minister, Sonya Savage, released a framework for Alberta’s environmental and climate policy. It’s policy that could have significant impact on great swaths of the Alberta economy. But it is also a cautious document. It budgets no funds, aspires but doesn’t commit, welcomes further input, promotes energy security, notes the need for technological breakthroughs, touts progress already made, asserts it’s jurisdiction, and draws a hard line between the Alberta approach and that of Ottawa. While Ottawa commits to net-zero 2050, Alberta aspires.
Still, saying that Alberta aspires to meet the Net-Zero 2050 goals is a relatively bold step for Alberta’s right-of-centre government, one that will surely vex some supporters. It’s also important to many of their big stakeholders, like energy companies who can’t raise financing from Bay Street, Wall Street or Europe without a firm commitment to reduce emissions. If they and their government partners don’t have a plan that is environmentally sustainable, they won’t attract financing or investor support.
Industry might be disappointed (if not surprised) that the plan does not mention a provincial tax credit to stack on top of the federal government’s Investment Tax Credit (ITC). The ITC incents companies to invest in carbon capture, utilization and storage (CCUS). Alberta’s oil and gas industry must leverage CCUS technology and the province’s excellent geology to have any chance of getting to net-zero, which is important to the viability of the oil and gas sector. Even with those advantages Alberta will face stiff competition to attract new investment given the enormous incentives of President Biden’s Inflation Reduction Act (IRA).
Some criticize the plan for its cautiousness and lack of commitment, others see that as an example of prudence and as an opportunity to help the government design climate policy that can meet targets while still attracting investment. That debate will rage even louder than usual as candidates hit the doors in the run-up to Alberta’s May 29th election.
The Details: A plan for a sector-by-sector plan
Alberta’s emissions plan highlights pragmatism, affordability, reliability, energy security, partnerships, and Alberta’s role as an energy exporter as principles that must underpin all emissions reduction. The plan is less about specific actions and more about delineating sector-by-sector decarbonization pathways. It indicates where the government may go next in climate and industrial policy. The plan proposes to follow through on previous commitments and consult with industry on new measures. It often notes that Alberta believes federal regulations and targets are unachievable in the short-term.
This is a plan to build specific plans. Here is our analysis on some of the key sectors.
Oil, Gas, and CCUS
Alberta’s aspiration for its oil and gas sector in the energy transition is to provide the world with net zero, reasonably-priced, and responsibly-produced energy to help insulate global partners from geopolitical risk and economic hardship. LNG export is again suggested as a substitute for burning coal and the plan muses about establishing a credit market for LNG exports, and the emissions they abate elsewhere – primarily in Asia.
The plan also notes that Alberta's vast gas reserves and emission strategies can lead to an emerging clean hydrogen economy, plastics recycling, and petrochemical diversification. This is a nod to Alberta’s Natural Gas Strategy – first released in 2020.
As for some new actions, the plan commits government to engage with stakeholders on a more stringent methane reduction pathway (a 75% reduction from 2014 levels by 2030). Of interest, is the plan commits government to exploring reducing the legislated oil sands emission limit to align with Pathways Alliance 2030, 2040 and 2050 targets. The UCP long opposed this limit in concept which was first introduced in 2015 by the Alberta NDP’s climate plan. The UCP kept it in place once forming government following pressure from industry to maintain it, and now the UCP is pondering lowering it, likely looking to demonstrate to Ottawa that they should back off more aggressive 2030 targets.
The plan notes Alberta’s commitment of $387 million over five years for investments in carbon utilization and sequestration projects but says that further work with the federal government is required to properly coordinate incentives. Increased incentives on CCUS programming could unleash tens of billions of dollars in investments in the oil sands, cement, power generation, and the petrochemical sector.
Electricity
Compared to other provinces where crown corporations dominate the electricity system, Alberta's electricity sector is complex, with multiple actors and opposing interests involved in the production, distribution, and innovation of the system. The complicated nature of Alberta’s electricity system can make orderly decarbonization challenging for the province. Despite this challenge, emissions from Alberta’s electricity sector have fallen significantly. Between 2005 and 2020, electricity sector greenhouse gas emissions fell from 48.7 Mt to 27.3 Mt, representing an absolute reduction of nearly 44%, largely to do with the sunsetting of coal generation.
The plan’s discussion of electricity can largely be read as a response to the proposed Clean Electricity Regulation from the federal government which seeks to regulate all electricity systems in Canada to be net-zero by 2035. The plan notes Alberta will balance electricity affordability and reliability with emissions reductions goals and “not forfeit the affordability and reliability of the system in pursuit of unrealistic federal targets.”
The plan defends natural gas generation stating that the government expects it to play a key long-term role in Alberta past 2035, and notes that wind and solar sources of energy are intermittent and unreliable. Industry-watchers will note similarities between the plan and recent comments by Premier Danielle Smith where she stated that Alberta “is a natural gas province” and further expressed criticisms of renewable energy.
Looking forward Alberta will seek to create a more reliable and diverse grid by on-boarding more natural gas and hydrogen paired with CCUS, energy storage, and continued renewable energy. In a first for the Alberta government but something industry insiders have been discussing for several months, the plan notes that nuclear technology via small modular reactors will play a role on the grid in Alberta’s future. The plan also notes Alberta will continue to review distribution and transmission policies to ensure ongoing reliability, affordability and coordinated efforts to increase efficiency in an attempt to reduce the need of large buildouts of new transmission infrastructure.
Biofuels
The plan acknowledges the role that bioenergy and biofuels will play in the energy transition, noting that in many instances these tools allow the economy to reduce emissions without the need to replace established energy infrastructure. The most common types of biofuels used in Alberta are ethanol and biodiesel. Ethanol is typically made from corn or wheat, while biodiesel is made from vegetable oils or animal fats. These biofuels can be blended with gasoline and diesel fuel to create cleaner-burning fuels that produce fewer emissions than traditional petroleum-based fuels.
The plan commits government to its first-ever review of the Renewable Fuel Standards Regulation. The review will look at increases to the minimum requirements for blending for ethanol and bio-based diesel and for fuel emission intensity reductions, as well as changes to policy architecture and expanding the regulation to include other fuels such as sustainable aviation fuel.
The plan also cites the previously announced agri-processing tax credit program for corporations investing to build or expand agri-processing facilities in the province. Through this program, the government will provide a 12% non-refundable tax credit against eligible capital expenditures for new or expanded facilities. This program however is widely regarded is insufficient compared to Saskatchewan’s program which provides incentives ranging from 15-40% on capital expenditures. Unless improved, it is likely Saskatchewan will continue to outpace Alberta in attracting investment into biofuels and agri-processing facilities.
Hydrogen
A significant part of Alberta’s emissions reduction plan hinges on hydrogen. The Alberta framework asserts that embracing hydrogen can reduce Alberta’s overall GHG output by 14 Mt as Alberta-produced hydrogen supplants other higher emitting energy sources such as coal and natural gas, and diesel in trucks and trains. The Alberta plan does not engage in a discussion over which kind of hydrogen is best. The colour scale delineating the sources of hydrogen production that drives discussions in Ottawa is ignored. The Alberta plan simply asserts that low emitting hydrogen should be regarded as clean hydrogen. In Alberta parlance that mostly means hydrogen produced from natural gas which then uses carbon capture technology to sequester the carbon by-product.
More than that, the document proposes once again that hydrogen production can be a major driver of the Alberta economy. It touts the success of the Alberta Petrochemical Incentive Program (APIP) in attracting several major hydrogen projects. It promotes investments from Alberta Innovates and Emissions Reduction Alberta. It commits to build further on Alberta’s Hydrogen Roadmap to encourage the blending of hydrogen with natural gas in pipelines for home and residential heating, as a replacement fuel for diesel in heavy transport, and to encourage hydrogen exports. The framework identifies hydrogen projects and potential ranging from the Edmonton area to Medicine Hat. Along with CCUS, the Government of Alberta sees hydrogen production, use, and export as a vital new business line and as indispensable to the expansion of an old business line, the production and export of Alberta oil and gas.
Agriculture
To get to net-zero, Alberta will need every sector engaged which explains the significant emphasis on the role of agriculture. The plan celebrates the agricultural sector and its success in cutting 17 Mt of emissions since 2002 through the adoption of carbon markets, the broad adoption of zero-tillage, and conservation cropping. It also notes that Alberta’s best-in-country irrigation system gives Alberta producers built-in climate resiliency. It acknowledges improvements through advances in fertilizer usage, continuous cropping, nitrogen management, and on-farm energy management. Rangeland conservation and restoration practices are also credited with reducing carbon emissions. Also noted are the multi-million-dollar investments in sustainability under both the Canadian Agriculture Partnership (CAP) and the upcoming Sustainable Canadian Agriculture Partnership (Sustainable CAP).
The plan also indicates next steps such as:
Assessing agriculture’s contribution to enhancing ecosystem services in an improved carbon market. This will likely include rangeland management, conversion of marginal croplands, and the restoration of riparian and other disturbed areas.
Potential expansion and refinement of Alberta’s agricultural emissions reduction protocols to improve usability and reduce burdens on producers.
Continued investment in emissions reduction and abatement through Sustainable CAP programming available to farmers, ranchers, and the food processing sector. There is particular mention of the Resilient Agricultural Landscape Program, which helps producers mitigate the effects of climate change.
The plan also mentions the role of research in bringing down emissions in the agriculture sector – including efforts to develop feed additives that significantly reduce the methane emissions from ruminants in Alberta’s livestock sector.
Critical Minerals
Alberta does not have the same experience in mineral production as other provinces, but the needs of the world have changed. As the concern over climate change grows, Alberta has become relevant as a potential producer of critical minerals used in low emission energy production and technology. Alberta’s new emissions framework reminds us that in the last few years Alberta has adopted new minerals legislation, built a regulatory regime for extraction and production, and invested in mapping through the Alberta Geological Survey all of which were necessary to get a nascent sector off the ground. It commits to building on the Renewing Alberta’s Mineral Future, strategy and action plan. It points to the potential to produce certain kinds of critical minerals, the most prominent of which is brine-based lithium while noting also the potential for helium production.
The document is also goes to some length to emphasize the significant potential to partner with Indigenous communities in the production and extraction of critical minerals in Alberta.
Bioenergy and Waste Management
Alberta intends to expand the circular economy and reduce waste through promotion of bioenergy and advanced recycling which can help Alberta reduce its waste footprint and increase its energy production. Building on the extended producer responsibility regulation enacted in 2022, the plan notes that trickier materials (single-use plastics, hazardous materials, other special products) will be incorporated into the EPR framework by 2025. It also indicates that there will be a provincial plastic feedstock market assessment to examine how to monetize the circular economy and position Alberta for success.
We should also expect new policy to favour greater biogas utilization (renewable CNG, bioethanol, biodiesel) in industrial and domestic settings. The document signals government plans to implement a minimum blend rate for utility natural gas, while simultaneously ensuring that consumers are not subjected to excess costs. Stakeholder engagement is a given, likely early in the next mandate.
Whatever you think of the plan, it is an opportunity to engage
Opinions of the plan will vary but the key takeaway is that the plan presents an opportunity for industry to influence Alberta’s climate policy. Even if the Alberta government changes industry input will be required to inform a climate and industrial strategy for an NDP government.
Organizations and companies should start strategizing about how to make government more aware of projects and initiatives that can meaningfully bend Alberta’s emissions curve. We advise that industry use this opportunity of engagement to help the government improve its plan, and ultimately help government meet the objectives it aspires to accomplish.