Alberta Environment lays charges against a Carbon Offset Firm under the Emissions Management and Climate Resilience Act
For the first time, Alberta Environment and Protected Areas (AEPA) charged an Alberta based environmental services company that provided third party verification services in connection with the compliance and reporting obligations required under the Emissions Management and Climate Resilience Act (Emission Management Act) and the Technology Innovation and Emissions Reduction Regulation (TIER). Specifically, this entity, among other things, allegedly contravened the Emission Management Act by providing false information and lacked the necessary qualifications to provide their verification service.
TIER, which is enacted under the Emission Management Act, implements Alberta's industrial carbon pricing and emissions trading system and regulates: (i) facilities that emit 100,000 tonnes or more of carbon dioxide per year; (ii) facilities that emit 2,000 tonnes or more of carbon dioxide per year and have voluntarily opted-in to TIER; or (iii) owners or operators of two or more conventional oil and gas facilities, who have applied to have their facility regulated by TIER (each a Regulated Facility).
TIER prescribes a “person responsible” for each Regulated Facility, and requires such person to submit annual compliance reports, detailing how the Regulated Facility has met its greenhouse gas (GHG) emission reduction requirements required by TIER.
Such GHG emission reduction requirements can be achieved in a number of ways including: (i) physically abating GHG emissions from such Regulated Facility; (ii) submitting emission offsets (Emission Offsets); (iii) submitting emission performance credits (EPCs); (iv) converting Emission Offsets into sequestration credits (Sequestration Credits) and then submitting them; (v) purchasing fund credits (Fund Credits) by paying into a TIER fund at an annual per tonne price prescribed by TIER (which, as of 2023 is $65/tonne); or (vi) subject to certain restrictions, any permutation of (i) through (v) above.
TIER is not only relevant to Regulated Facilities and the persons responsible for them. Project proponents of Emission Offset producing facilities must comply with certain TIER requirements as well. Such facilities, if operated in accordance with TIER prescribed GHG quantification protocols, can generate Emission Offsets which can be sold to a person responsible for a Regulated Facility so that such Emission Offset can be used to achieve the annual compliance obligations in respect of such Regulated Facility.
A key feature of TIER is the requirement for persons responsible for Regulated Facilities and Emission Offset project proponents, to have their TIER prescribed filings scrutinized by an entity accredited as a verification body to the ISO Standard 14065:2013 (a Third Party Assurance Provider). Accordingly, Third Party Assurance Providers play a critical role in maintaining the integrity of TIER’s industrial carbon pricing and emission trading system.
Amberg Corp. (Amberg) and Olga Kiiker (Kiiker) face the following 25 charges for actions alleged to have occurred between April 1, 2021 and June 29, 2021:
- 1 charge under section 44(a) of the Emission Management Act for knowingly providing false or misleading information pursuant to a requirement under Emission Management Act or the regulations to provide information;
- 1 charge under section 44(b) of Emission Management Act for providing false or misleading information pursuant to a requirement under Emission Management Act or the regulations to provide information;
- 11 charges under section 33(b) of TIER for failing to comply with the rules and other requirements set out in Part 1 of the Standard for Validation, Verification and Audit, in providing a verification referred to in section 15(4)(e) of TIER contrary to section 15(6); and
- 12 charges under section 33(f) of TIER for performing the functions of a third party assurance provider and not having the qualifications, or is not eligible to be a third party assurance provider under section 27.
Each of the charges carry the potential for penalties, ranging between $50,000 - $100,000 for an individual and $500,000 - $1,000,000 for a corporation. Should Amberg and Kiiker be found guilty in respect of all 25 charges, Amberg could be liable for up to $13,000,000 in penalties and Kiiker, individually, could be liable for up to $1,450,000. Although unlikely, the charges against Kiiker, as an individual, also bring the risk of up to two years in prison.
The Role of Environmental Reporting in the Carbon Credit System
The legitimacy and validity of TIER required filings and any EPCs, Emission Offsets or Sequestration Credits referenced therein, is critical to Alberta’s carbon market.
In the case where an EPC, Emission Offset or Sequestration Credit referenced in an annual compliance report is subsequently found to be invalid, the person responsible for the Regulated Facility to which such compliance report pertains must, within 60 days of receiving notice of the cancellation or direction from AEPA, do one of the following:
- pay into the TIER Fund an amount equal to the amount it would have had to contribute to obtain one fund credit for the year the invalidated Emission Offset, EPC or Sequestration Credit was used; or
- use another unused Emission Offset, EPC, or Sequestration Credit, in place of the invalidated Emission Offset, EPC or Sequestration Credit.
It is important to note that such curative requirements are operative notwithstanding that such invalidated Emission Offset, EPC or Sequestration Credit may have been verified by a Third Party Assurance Provider, as required under TIER. Such verification, while indicative of the validity of such credits, is not conclusively determinative of their validity.
Accordingly, it is critical for those transacting in any Emission Offsets, EPCs or Sequestration Credits to not view successful verification as a substitute for the proper allocation of invalidation risk as between buyer and seller in the operative transaction documents.
If you have any questions about reporting obligations under TIER or other environmental legislation which may affect your business and operations, or need assistance in drafting commercial agreements in respect of the generation, purchase or sale of Emission Offsets, EPCs or Sequestration Credits under TIER or other carbon credit or environmental attribute under any other compliance or voluntary market regime, please contact your trusted McCarthy Tétrault advisor or one of the authors.