Alberta Carbon Credits Explained
Carbon credits are a great incentive in Alberta to create economic opportunities for emissions reduction projects. In many cases, carbon credit revenue can deliver emission reduction project paybacks in one year, with internal rates of return (IRRs) of over 100%.
How are carbon credits Generated?
Carbon credits can be generated under the Alberta Emission Offset System when companies complete specific types of emissions reduction projects. To be eligible, the emissions reduction project must follow one of the Alberta quantification protocols. In oil and gas, pneumatics projects are eligible to generate carbon credits under the Quantification protocol for greenhouse gas emission reductions from pneumatic devices. To generate credits, oil and gas producers must complete the projects following the specific guidelines in the protocol. Producers usually hire carbon credit development companies to complete the documentation required to be submit to the government. Once the documentation is submitted and data verified, the project is logged in the Alberta Carbon Registries and the credits are created.
Where does Carbon Credit Revenue Come From?
Carbon credits can be used by oil and gas producers to offset their compliance costs under Alberta’s industrial carbon tax program, called TIER. Alternatively, a Producer can choose to sell the carbon credits to others who are looking to purchase carbon credits to offset their own compliance costs. Carbon credits trade between parties in bilateral over-the-counter deals, often through brokers or aggregators.
How Much are Carbon Credits Worth?
The following assumptions can be made to understand the value of carbon credit revenue created by a project.
The carbon price (sometimes called tech fund price) in Alberta in 2022 is confirmed to be $50/tCO2e
The Federal government announced that the carbon price will be rising to $170/tCO2e by 2030. The Federal carbon tax regulation requires that Provinces have equivalent carbon pricing, or else follow the Federal program (called the Federal backstop).
Market price for carbon credits historically averages 88 to 90% of carbon price
Most producers hire a carbon credit developer to do data collection, analysis, QC, and documentation requirements of generating carbon credits. Prices for this service may be based on a fixed cost or percentage of total credits generated.
According to the Alberta Standard for GHG Offset Project Developers, the full crediting period for a project is 8 years. If legal requirements come into effect during the offset crediting period, crediting ends as of the date the legal requirements are in effect.
The AEP released a new memo on November 29th, 2021 detailing how credits would be quantified after Dec 31, 2022 when new AER Directive 60 restrictions including the overall vent gas (OVG) limit and requirements for low bleed devices come into effect.
Which Projects Are Eligible?
- Conversion of high bleed devices to low bleed
- Installation of new non-emitting instruments
- Installation of new non-emitting pumps
- Conversion of Instruments from Gas to Air
- Conversion of Pneumatic Pumps from Gas to Air
- Electrification of Existing Pneumatic Instruments
- Electrification of Existing Pneumatic Pumps
- Vent Gas Capture
Price Breakdown
Producers can expect to net about $41/tCO2e of emissions reduced in 2022 increasing to $149/tCO2e by 2030.
How does carbon credit financing work?
In cases where Producers do not have capital available to execute emissions reduction projects, carbon credit financing can be used to complete projects at no upfront cost. Carbon credit financing companies provide upfront capital and in return they keep a portion of the carbon credits generated by the project. Once payback of the initial capital is achieved, these parties often keep between 30-70% of carbon credits, depending on project economics.
More Information
Westgen works closely with the Government of Alberta and many different carbon credit development and financing parties. For more information or for a free assessment of carbon credit revenue opportunities, please email info@westgentech.com
