Journal of Energy Markets

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Addressing competitiveness of emissions-intensive and trade-exposed sectors: a review of Alberta's carbon pricing system

Tyler Tarnoczi

  • In Alberta’s carbon pricing system, mechanisms to address carbon leakage include exclusions, output-based allocations, and financial compensation in the form of market-based compliance flexibility and access to innovation funding.
  • Policy makers should consider sector-level competitiveness across jurisdictions when developing product benchmarks or output-based allocations as this is the primary policy mechanism used to address competitiveness.
  • Assessing and preventing carbon leakage for the oil and gas sector is unique given the frequency and intensity of capital deployment. As such, an assessment of competitiveness needs to incorporate the ability to attract new capital investment.

In 2018, the Canadian province of Alberta introduced a revamped carbon pricing regime – the Carbon Competitiveness Incentives Regulation (CCIR) – for large industrial emitters. This regulation set product benchmark emissions intensities and required that facilities purchase emissions credits for the portion of emissions that fell above that product benchmark. With a focus on Alberta's oil and gas industry, this paper assesses mechanisms used under the CCIR to address competitiveness-driven carbon leakage for emissions-intensive and trade-exposed sectors. These mechanisms include exclusions, output-based allocations and financial compensation in the form of market-based compliance flexibility and access to innovation funding. The CCIR also provided additional cost containment for facilities that demonstrated significant economic risk resulting from carbon compliance costs. The output-based allocation, which is the primary policy mechanism for addressing competitiveness, is compared with the carbon pricing system in California. This review suggests that the CCIR failed to provide evidence that emission allocation levels were sufficient to mitigate carbon leakage. Further, the system's definition of competitiveness failed to incorporate the ability to attract new investment, which is particularly important for the oil and gas sector due to its capital-intensive nature. Understanding policy options for protecting industry competitiveness from carbon pricing may help to inform future regulatory design that mitigates the likelihood of carbon leakage.

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