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JV Treatment of GHG Costs/Credits t of GHG Costs/Credits

This report discusses the current situation and regulations regarding the treatment of greenhouse gas (GHG) costs and credits in joint ventures (JV). It covers topics such as compliance costs, carbon credit allocation, provincial and federal regulations, and the involvement of industry associations. The report also addresses key stakeholder issues and provides recommendations for operators and partners.

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JV Treatment of GHG Costs/Credits t of GHG Costs/Credits

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  1. JV Treatment of GHG Costs/Creditst of GHG Costs/Credits JV Treatment of GHG Costs/Credits Status Report CAPP GHG JV Working Group November 6, 2007

  2. JV Treatment of GHGs • Provincial regulation: effective July, 2007 • Federal proposal: effective 2010 • CAPP involvement: consultations • International Emissions Trading Agency conference: first look at JV issues • CAPP membership covers producers and facility owners

  3. JV Treatment of GHGs • Questions: • How should operator-paid compliance costs be charged for JV purposes? How should carbon credits be allocated? • Response: • CAPP GHG JV Working Group • Review of proposal from • PJVA, PASC, CAPL, CGPA

  4. JV Treatment of GHGs – Current Situation • Alberta Climate Change Plan • Effective July 1, 2007 • Federal regulatory Framework for Air Emissions being developed • Starts in 2010 • In the works: • BC Energy Plan • Saskatchewan Energy and Climate Change Plan

  5. JV Treatment of GHGs – Alberta Plan • ‘Existing facilities’ as of 2000: • baseline average intensity 2003-2005 • 12% reduction from baseline starting July 1, 2007 • ‘New facility’ 2001 or later: • Third year of operation becomes baseline • 2% reduction per year beginning year 4 until 12% reached • Compliance • Actual reductions in GHG intensity • AB offset credits • Technology fund ($15/tonne – unlimited access) • Compliance deadline March 31, 2008 • Verification • Baseline by Dec. 31, 2007 • Annual review with reporting

  6. JV Treatment of GHGs – Federal Plan • 2010: 18% intensity reduction; 2% annual improvement thereafter • Goal: absolute 20% reduction from 2006 levels by 2020 and 60-70% reduction by 2050 • Compliance: • Actual reductions • Declining access to Canadian Technology Fund • Emissions trading • Eligible offset credits

  7. JV Treatment of GHGs – Working Group Approach • Focus on Alberta with enough flexibility to accommodate future Federal program • Balance key stakeholder issues • Suite of equitable options for each compliance option and credit allocation method • Balance solutions against materiality and administrative burden. • Immediate approach for 2007, then longer-term approach for 2008 and beyond • Information bulletin approach instead of industry letter

  8. JV Treatment of GHGs – Key Stakeholder Issues • Operator responsible for “true-up” • Targets at facility level • How are charges/credits shared among facility operators, JV partners, custom processors? • Charges/credits measured against a baseline; what has changed vs. baseline? • Issues with compliance mechanisms: • Technology fund • Offset credits • Credits in kind • Transfer credits from another of the operator’s facilities • Hedging • Materiality changes over time.

  9. JV Treatment of GHGs – What can you be doing now? • Operator: • Baseline audits by Dec. 31, 2007 • Estimates to owners • Accrue liabilities • Select compliance mechanism • Ensure inclusion in royalty allowed costs • Partners • Accrue liabilities based on estimate • Ensure inclusion in royalty allowed costs

  10. JV Treatment of GHGs – Process next steps • CAPP GHG JV Working Group meeting through November to draft proposal • Considering “short-term” letter plus future bulletin as compliance mechanisms mature • Organization reviews in December/January • Report in Q1, prior to first true-up deadline

  11. JV Treatment of GHGs • INPUT REQUIRED – Contact: keiren.ferris@shell.com

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