• Aaron Schroeder

Alberta Emission Offset Crediting Period and Renewable Electricity Projects

The emission offset crediting period for renewable energy projects in Alberta has typically been eight years with the possibility of a five-year extension. Alberta Environment and Parks (AEP), on approval from the director, may grant a renewable electricity project a 10-year offset crediting period with no possibility for an extension[1]. A cumulative 13-year crediting period vs a single 10-year crediting period seems like a slam dunk, no? The winds on that assessment are shifting and the answer may not be as clear as a sunny southern Alberta sky.

in revised EGDF The Electricity Grid Displacement Factor (EGDF) is the rate at which renewable electricity projects convert megawatt-hours to emission offset credits. The EGDF is determined based on the emission intensity of existing generators at the operating margin of the Alberta Electric System Operator’s (AESO) merit order, in combination with emission intensity of newly constructed generators. Historically, AEP updated the EGDF every five years. With the release of the Carbon Offset Emission Factors Handbook in 2019, the government committed to revising the EGDF every two years[2]. The current EGDF of 0.53 tCO2e/MWh is valid for projects with crediting periods commencing between January 1, 2020 to December 31, 2022.

Why is this so important?

Under the Specified Gas Emitters Regulation and before 2015, the EGDF was 0.65 tCO2e/MWh. This was reduced to 0.59 tCO2e/MWh for the period 2015 to 2020. At this time, Alberta Environment and Parks committed to revising the EGDF every 5 years. Prior to 2019, a renewable energy project was assured an EGDF of 0.59 tCO2e/MWh and likely only one, possibly two revisions of the EGDF before receiving an extension approval. Today, AEP will revise the EGDF every two years, and in combination with the rapid decarbonization of the electricity system in Alberta, a renewable electricity project may see up to four revisions of the EGDF by the time a five-year extension has been granted.

Prior to the Carbon Competitiveness Incentive Regulation (CCIR) and subsequent Technology Innovation and Emissions Reduction Regulation (TIER), renewable energy projects were incented to maximize the production of emission offset credits, and the offset crediting period, for use as a compliance mechanism for Regulated Facilities (industrial emitters). Before it became an option for these projects to opt in as Regulated Facilities under the TIER Regulation, renewable electricity projects could only sell Renewable Electricity Credits (RECs) in the voluntary market after the expiry of the offset crediting period. RECs typically sell at a discount to the price of compliance credits. Now, under TIER, a renewable electricity project can opt-in as a Regulated Facility after the expiry of the offset crediting period and create Emission Performance Credits (EPCs) for use by Regulated Facilities to meet their compliance obligations. EPCs are currently generated at a rate of 0.37 tCO2e/MWh.

End-of-crediting period evaluation of environmental attributes for renewable electricity projects is now underpinned by the TIER regulation. So long as the TIER Regulation is in place, a project may create EPCs at the end of the 13-year crediting period (eight plus five-year extension), or at the end of the 10-year crediting period, depending on the option chosen by the project developer. Since compliance credits are worth more than voluntary credits, the inclusion of renewable electricity projects under TIER is disrupting the preference for crediting period timeline.

The Director, in their approval of a 10-year crediting period, may apply additional criteria, so project developers should contact Alberta Environment and Parks regarding their specific project before proceeding with a decision. Regulation and Standards are subject to change at any time.

The biggest unknown: Where will the EGDF be next?

An emission offset project starting in 2022 will receive an EGDF of 0.53 tCO2e/MWh. The cumulative compliance credits (emission offsets and EPCs) over 13 years between the two crediting period options is equivalent at an EGDF of roughly 0.43 tCO2e/MWh at the time of the five-year extension[3]. This is the “break even” point. In eight years (2030), if the EGDF is greater than 0.43 tCO2e/MWh, a project would have created more emission offset credits under an eight plus five-year scenario. For an EGDF less than 0.43 tCO2e/MWh in 2030, a project would have created more emission offset credits and EPCs under the 10-year option.

AEP has committed to revising the EGDF by January 1, 2023. We will likely have some indication later this year, or in early 2022 regarding the revised EGDF, and perhaps a trajectory of where the EGDF is headed looking forward to 2030. In the meantime, renewable energy project developers seeking to initiate emission offset projects prior to January 1, 2023 have some thinking to do about locking in the EGDF and which crediting period is right for them.

[1] The Standard for Greenhouse Gas Emission Offset Project Developers, V3.0, November 2019, Part 1 Paragraph 11. [2] Carbon Offset Emission Factors Handbook, V2.0, November 2019 [3] This calculation assumes the high-performance benchmark for “good-as-best-gas” remains at 0.37 tCO2e/MWh

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