Modelling carbon taxes for in situ oil sands projects - part II

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In August 2017, we published Part I of this post, which focused on our projections and calculations for future benchmark carbon tax pricing on in-situ oil sands projects in Alberta. In December, output based allocation legislation was announced and passed into law by the provincial government, effective January 1, 2018.  

After our careful review of the official Alberta Carbon Competitiveness Incentive Regulation, (which replaces the Specified Gas Emitters Regulation), GLJ has identified several key takeaways:

  • The benchmark rate for in situ bitumen production (SAGD) is 0.3504 tonnes/m3. Using a typical rate of 0.023715 tonnes CO2/bbl steam, this equates to a target SOR of approximately 2.35.
  • The benchmark rate is forecast to decrease by 1% each year, starting in 2020.
  • The benchmark will be reviewed every five years.
  • Existing facilities will have a two-year transition period to meet the new benchmark. The transition allowances are defined for each project and essentially phase in the new benchmark, from the  prior allowance to the new target, over two years.
  • Currently, the carbon tax in Alberta is $30/tonne for 2018. No official increases have been legislated, but the federal government has announced a $50/tonne target by 2022, (covered in Part I of this blog).
  • All facilities with > 100,000 tonnes/year of “CO2 equivalent” emissions are subject to the legislation. Facilities with less than 100,000 tonnes/year have the option to apply to opt-in. If a facility doesn’t opt-in, they would be responsible for paying carbon tax on all purchased fuel gas; whereas within the legislation the first 0.3504 tonnes/m3 of emissions are “tax free”.
  • Carbon taxes are not payable in years 0 and 1 of a facilities operation

Here’s a chart showing the applicable carbon tax on a per barrel basis, depending on the SOR difference to the baseline, and the carbon tax rate in $/tonne:

glj-carbon-tax-sor-offset-to-oba-baseline.jpg

Carbon tax payable based on SOR offset to OBA baseline

 

GLJ has developed a calculator to assist you in quickly and easily obtaining an estimate of carbon taxes payable for your unique scenario: 

 

 

 

 
 

 

GLJ will continue to observe the trends and reactions to this new legislation and will provide additional commentary and forecasts surrounding the proposed federal carbon tax. In the meantime, further detail on the new output-based allocation legislation is available on the websites listed below:

The Carbon Competitiveness Incentive Regulation

Carbon Competitiveness Incentive website

Offset Credit System Protocols