Emissions Accounting – Turn Compliance into Capital

Full Transcript

ELIZA WITH PANDELL Welcome to everybody here at our Pandell Leadership Series. My name is Eliza and I’m the Customer Engagement Specialist here at Pandell. And today we’re really excited as we are talking about Emissions Accounting - Turning Compliance into Capital. Now I’m going to actually invite Dean up to do an introduction of our speakers today. Dean is a Senior Account Executive here at Pandell. And we’re thrilled to have you here Dean to introduce our key speakers.

DEAN WITH PANDELL Thank you Eliza. Just a quick note on who Pandell is if you don’t know. We’re a leader in delivering web-based products and services to land, accounting, and operations departments to over 500 companies in Canada, the US, and abroad as well. Our customers range from start-ups to major enterprises throughout the energy sector. Spanning industries of upstream oil and gas, midstream, and pipelines, field services, land brokers, utilities, mining, and a lot of renewable energy companies come into the mix now as well. Our focus at Pandell is really on innovation and customer service.

So, onto our presenters today. Peter Bryson, he’s got over 35 years of experience in the oil and gas industry and he’s currently the CEO of the TriAcc Group Inc. He’s worked in many sectors over those 35 years gaining experience in accounting, production accounting, measurement, IT and government regulatory programs and we all know there are a lot of those.

In 2016 after spending 20 years as an independent consultant, Peter co-founded TriAcc Group Inc. And they specialize in accounting, measurement, and governmental programs, providing those types of assistance to energy companies. TriAcc operates on a straightforward, professional, innovative, and quality focused approach and continuously adds value to their clients and their assets.

I personally worked with Peter at Harvest Operations. I found him to be very dialed into some of the production accounting and management challenges we had, and he’s very focused on delivery.

Your first speaker today is Mr. Corey Wood. Corey’s got his Master of Science, and Renewable Energy and Resource Management at the University of South Wales. He’s got 10 year of experience in environmental and regulatory as a compliance advisor. With a focus on air emissions, quantification, reporting, and reduction strategies.

In 2017, Corey co-founded and is currently CEO of Clairifi. Clairifi is an industry leading cloud-based emissions management software. It integrates very nicely to some of the production accounting systems out there. So, Clairifi helps maintain and maximize tax savings, increased operational efficiencies, and helps identify opportunities to capitalize on carbon credit offset projects, as well as government funded opportunities.

It’s my extreme pleasure today, and you’re going to find this very interesting, and my pleasure to introduce Peter Bryson and Corey Wood.

COREY Fantastic. Thank you so much Dean. Before Peter and I jump into the super exciting material here today. I just want to take the opportunity to thank Pandell for the opportunity. We are very grateful to be able to speak to you folks today and present our material. We’re just going to take a very quick moment just to kind of talk briefly about the two companies and then jump immediately into the content today.

To mirror just what Dean said, Clairifi Inc is a software company. We focus on providing industry leading cloud-based solutions that focus around the automation of analytics and regulatory requirements all in one tool.

Today we are going to be talking about some of things that Clairifi does to help with these problems. The main goal there is the digitalization of an equipment inventory and being able to keep track of all the things we require from a regulatory perspective. In order to then also enable fuel flare vent (FFV) and emissions quantification, compliance reporting across a broad suite of regulatory requirements. And really the value-add there they analytics and forecasting of emissions, carbon tax, fuel flare vent, you name it. So, very excited to talk about some of those things there today.

PETER Thanks Corey. My name is Peter Bryson and I’m the CEO of TriAcc Group Inc. And we’re a small boutique consulting firm with senior people. We believe that we are accomplished, accurate, and accountable in our fields and that’s our motto for TriAcc and that’s who we are. Thanks.

If we look at this diagram it says reduce emissions to increase profit and grow. There’s various different ways that we’re going to talk about doing that today. The increase in transparency and the communication. We believe, kind of fundamentally, that reducing emissions creates value to your bottom line and hence gets your regulatory compliance.

So, you know really, it’s about shifting the investment and regulatory landscapes. For oil and gas in particular to try to get money into our business we know we’ve got to have good ESG recording. You know our investors that come into oil and gas, especially now and for the last few years. You know they expect us to have pretty transparent emission accounting programs and being compliant. And we believe also that once we do this it gives us the ability then to create better business decisions. It kind of goes back to that, if you measure it then you can understand what it’s about.

So, there’s tonnes of overlapping emission requirements right now that are coming into effect in the last two to three years. And we know they’re going to change. So, we want to make sure that we’re on top of that and leading the way as an industry to try to maximize our profits and also minimize our costs while adding value to the environment. The oil and gas people we know, they all want to do it better. So, this is giving us the opportunity to do that.

COREY Thanks Peter. So, one of the things you’ve mentioned there certainly is the rate of regulatory change and the things that we’ve seen in the last few years. This slide certainly does not summarize all of that regulatory change, but we think it does a good job of two things. One, showing the kind of – you know it’s a busy slide. It’s definitely a busy industry and a busy area to work in when looking into regulatory compliance and things that we have to do to achieve that ultimate goal of compliance.

We have put some little examples here kind of to show those changes but also to show that each province and the federal government are really moving in the same direction. So, while Peter and I were putting together content for this material we discussed quite a bit about the level and detail that we should talk about. Should we talk specifically about Alberta? Or, perhaps Canada as a whole. I think this slide shows it doesn’t really matter who we talk about or what level of detail we go to because whether we look at Alberta, British Columbia, Saskatchewan, or the federal government here in Canada we see them all doing similar things. Perhaps with a slightly different cover to the regulation but ultimately the goals are the same. So, as we go through this presentation, we’re kind of keeping these things in mind that these are definitely check boxes we’re trying to check off. But also, we should look at them in ways that doing these things can provide a tremendous amount of value to our organization.

So, typically what we see no matter what regulatory regime we’re looking at we’re going to see definitions, changes to those definitions for fuel flare and vent from how we used to classify and categorize those activities. We’re going to see a real push towards site and equipment specific limits. Usually regarding venting. We’re also going to see a focus on the idea of methane reduction or overall emission reduction and how do we do that? Do we have targets set? Do we have a plan? Is that plan something that is achievable?

As we move through this, we’re going to consider these things from a compliance perspective but also try to work in – you know even if these regulations weren’t here, might I do these things anyways? And if I did what type of value or what type of benefit would I get from it? Anything to add there, Peter?

PETER So, the next slide here we talk about – you know specific to oil and gas we know that typically we produce greater than a half or half of e3m3 of fuel or consume half of e3m3 of fuel a day. We got to measure it. And typically, we have one meter at a gas plant where we measure here you know the 100 e3m3 of this fuel meter. With the regulatory changes that Corey’s talked about, you know the buckets that we allocate that fuel flare and vent into have changed. Under the old regimes we used to report that 100 e3m3 just as fuel and now with the changes in regulations we have to break it out into vent and flare. So, in this example here we’ve said that the 100 e3m3 feeds 90e3m3 of fuel with the various different pieces of equipment underneath it. And then into vent, things like pneumatic pumps and pneumatic instruments now where we used to classify them as fuel we now classify them as vent. And then into the flare buckets also. So, that 100 e3m3 now all of a sudden becomes 90 of fuel, eight of vent, and two of flare. Whereas before we used to just report it as a 100 of fuel. And that becomes significant into the next slides that we’ll continue to go through where we look at the carbon pricing models that are on here.

COREY Great so, shifting a little bit from kind of the regulatory change and the things that we’ve seen and the changes of definition and the equipment inventories, we’ve also been hit, maybe not the right word to use, but we also now face the concept of carbon pricing in Canada.

Similar to how we saw regulatory change across the multiple, different jurisdictions whether it be provincial regulatory change or federal we’re seeing the same thing happening with carbon pricing.

So, if we look federally in Canada, we have what’s called the Carbon Pricing Backstop. Which is enabled by the Greenhouse Gas Pollution Pricing Act (GHGPPA). So, the federal government back in around 2018 announced that carbon pricing is a mandatory thing in Canada. It’s something that we have to do to be responsible, corporate citizens, we’ve got to have a price on our carbon emissions.

So, the federal Carbon Pricing Backstop put in just that. The backstop stating just that, ‘if your province does not have its own program, you will be subject to the federal carbon pricing program.’ The federal pricing program has two elements: a carbon levy and an output-based pricing system. Typically, you are in one or the other of those two programs.

In response to the federal government’s Carbon Pricing Backstop, the Alberta government replaced the existing Carbon Competitiveness Incentive Regulation (CCIR) with what is called the TIER regulation or the Technology Innovation and Emissions Reduction regulation. This is Alberta’s new industrial greenhouse gas emissions pricing program which works on an output-based pricing standard.

British Columbia has been really ahead of the game. Some might say Alberta sort of has been along with them, but we’ve gone through a bit more change than British Columbia has. BC has had their provincial carbon levy in place since 2008. It’s fairly straight forward it just simply puts a price on pollution by adding a tax, if you will, to fuel use in the province.

Finally, also a reaction to the federal Carbon Pricing Backstop we’ve seen the province of Saskatchewan put in some new regulations here in the last couple of years. They have an output base pricing system similar to TIER. Similar to that output-based pricing system under the federal government called the Management and Reduction of Greenhouse Gases Regulation or called the MRGHG. Again, this sets a benchmark which basically allows a certain amount of emissions to be admitted with no penalty but then once you get above that bar you start to face compliance obligations or reduction obligation. Saskatchewan has gone perhaps a little bit further than Alberta in the carbon pricing side in that they also have costs associated to venting and flaring when those activities are performed above and beyond a benchmark.

So again, we can talk about these different jurisdictions, but I think what we want to get across here is that it appears as if carbon pricing is here to stay. There does seem to be a couple of different approaches to carbon pricing. Some which may be good for your organization or perhaps I should say better than the other approach. And it’s worth being aware of exactly what your jurisdiction’s doing and how they’re going about that.

So, there’s a lot on that last slide. So, wat we wanted to here is kind of breakdown these two different approaches so that they’re fairly clear as we move forward throughout the presentation.

We’ve talked about the concept of a carbon levy. British Columbia has the carbon levy and there is a carbon levy component under the Carbon Pricing Backstop federally. So, carbon levies are pretty simple approach. We actually just add a tax to the amount of fuel that consumed any backstop jurisdiction. So, in this case in a province that has the carbon pricing backstop implemented from the federal government.

So, when we talk about fuels, we are talking about liquid fuels, gaseous fuels, as well as solid fuels. And we look at each different fuel type and consider the omissions that would come from combusting that fuel and we put a price on it that’s related to the CO2 emissions again from burning that fuel.

A few examples here, we are aware of the carbon levy rates that have been set up until 2022. We’re showing the $40 per tonne of CO2e pricing here and that relates to the different fuel types in a cents per liter type tax. And we know that this is going to increase over time up to $50 per tonne in 2022. And beyond that there’s been a bit of a goal post set in saying that the price is going to hit $170 per tonne by 2030.

As an alternative to the carbon levy, we see an output-based pricing system. Again, you’re typically only regulated by one of these approaches. The output-based pricing system approach, which would be similar to TIER in Alberta or the MRGHG, OBPS in Saskatchewan. If under this program you’re typically then eligible for an exemption from the carbon levy. And that’s what I mean about being really just being just regulated by one of these.

Under an output-based pricing system we look at performance benchmarks. Typically, there’s two different types of performance benchmarks. We often see a high-performance benchmark which is really related to a particular sector or a particular activity. And that benchmark usually comes from something like the top 10 performing facilities or companies in that industry and we set a bar based on their activity. So, if you are within the top 10% then typically you don’t have a penalty or compliance obligation. However, if your facility or company performs at a level that is lower than that 10% then you are going to omit over the benchmark and have an obligation to face.

The other type of performance benchmark is a facility-specific benchmark. People in Alberta will likely be more familiar with this facility-specific benchmark which is just that facility-specific. We are looking at one facility year-over-year and we are coming up with a benchmark based on an average of historical behavior or historical performance. Under this type of approach facilities are typically allowed to emit up to a yearly performance standard. That performance standard is in relation to your benchmark and that performance standard then decreases year-over-year forcing that company or facility to get better. Facilities that are omitted less than their performance standard typically find themselves in a position to generate performance credits and not have to pay a penalty, not have to reduce. However, those facilities that emit greater than their performance standard typically have to satisfy a compliance obligation. And in a lot of cases right now that’s usually some sort of penalty.

So, again fairly kind of simple concepts however they don’t come across as a simple when we have all that text on the screen. So, if we were to really, really, simplify it we would look at something like this. Under the carbon levy, 100% of the fuel that’s combusted and often also flared is taxable. So, it’s pretty a straightforward equation. We just look at how much was used, we multiply that by a tax rate, and we come up with a fuel charge.

As an alternative, under the output-based pricing system less than 100% of the fuel combusted and flared is taxable. How much less than 100% can differ based on those different benchmark types that we looked at. Whether it be a high performing benchmark or a facilities specific benchmark. But there’s also often some other very - may seem like minor details when reading the regulation however than when working through the math we find out they are significant details. Such as in Alberta when we look at the TIER regulation when we move to the output-based pricing system we will shelter somewhere often around 90% of fuel combusted but also 100% of flare because in that particular regulation flare volumes are not considered within a benchmark or within a performance standard, only fuel is. So, we can see here that just by selecting or getting into one program over the other we may use the same amount of fuel, we may omit the same amount of emissions, but each program is going to result in a different cost to my company or to my facility. Peter, please feel free to add to that if you think I have I overlooked anything there?

PETER Yeah, no I think the important fact is, is that typically what we are seeing, whether it’s seen in Canada or other places, that when you go to the federal regulated cost structure is less than the state or the province cost structure. So, you really want to look at the differences.

COREY So, a few years back we used the Clairifi Software system to actually forecast different carbon tax obligations for one facility under these different programs. To see how that one facility, if it remained constant, if we simple just moved it from one approach for one carbon pricing to another how those costs would change?

I don’t know that I really need to say a whole lot I think this diagram does a pretty good job at showing that under the federal program where we’re paying a carbon levy on 100% of our fuel and flare our costs were quite significant. They’d be that red (orange) bolded line there. If we took that exact same facility and we put it as an aggregate facility into the TIER program in Alberta, we see a drastic reduction somewhere around 90% of the compliance obligation that we would have in relation to carbon pricing. The final little orange line (yellow) is actually the previous provincial program that was in Alberta prior to the repeal of the provincial carbon levy under the new government regime.

So, again just a picture here we do have carbon pricing however often there’s the ability to determine which program best suits your company, your facility and you can see here that there’s drastic changes between those different approaches.

PETER Corey I’m going to jump in there. There’s a question, Robert. Great question He asks the question about, what happens to flare in Alberta under TIER? Robert, it becomes exempt when you’re in TIER. You do not pay the carbon levy on your flare when you enter into TIER.

COREY Yeah just to qualify that a bit Peter, just to make sure it’s clear. Typically, we are talking about an aggregate facility. So, 100% correct there around the aggregate facility approach. It’s probably worth, as we talk through this considering that we are talking about an aggregate facility even if we maybe not make that as clear as we should, things are slightly different for those facilities that omit greater than the large emitter threshold or opted in as large emitters. In that case the flare volume would be there but typically we’re talking to those small or intermediate producers that find themselves on the aggregate side of TIER.

Okay great. So, Peter did walk through this diagram earlier. And when we walked through this diagram, we were really talking about the new definitions of fuel flare and vent under the various different regulatory requirements across the provinces. So, we know that we have to do this, for example if we talk about Directive 60 in Alberta. We’re going to need an equipment inventory, we’re going to need to probably work bottom up, get ourselves to a position where we can break that 100 e3m3 into these three different buckets. But the nice thing about that, if we have done this, we are in a much better position from a carbon tax perspective as well as from a compliance perspective. Why is that? Because under these programs typically what we are looking at is fuel combustion being the taxable portion of fuel use. Specifically in Alberta, we just talked about it, you know venting and flaring. We see limits there in Directive 60 on how much we can vent, how much we can flare? But if we are an aggregate facility we’re not paying a cost on that.

So, if we go to the next slide. We’ll see how companies that are doing this differ from companies that are not. So, on the left-hand side of this table we’re just going to take that 100 e3m3. Kind of the old way that we would report fuel. If we just reported that 100 e3m3 and used a simple approach to get to tonnes of CO2 equivalent (CO2e). We’re going to get to somewhere around 250 tonnes. Paying the federal fuel charge that’s going to come out to be about $7,760 at $30/ tonne for 2020. If we forecast that out to that $170/ tonne of CO2 equivalent we’re up to almost $44,000 on the year in carbon tax. And this organization is paying on non-taxable fuel use. Again, that 100 e3m3 actually has about ten e3m3 that’s not taxable under some regulations. Further, this company doesn’t really have the transparency behind that meter, behind that fuel use to start looking at projects and things they might be able to do at the equipment level in order to further reduce that fuel number.

As an alternative, if we consider that last diagram, and we think of those companies that are breaking out their fuel use into fuel combusted, fuel vented, fuel flared we instantly see a reduction in the amount of fuel combusted down to 90, that of course will then translate into reductions under the federal fuel charge, should they be paying that. And this organization finds themselves in a better position to now reduce that moving forward. They’re able to look at the equipment that’s burning that fuel. They’re able to consider the difference between rich burn engines and lean burn engines. They’re able to look at projects that they might be able to do to their equipment in order to continue to reduce that fuel use and see that fuel use number come out in their production accounting before they submit it.

PETER TriAcc first started getting into the emissions business we’re pretty suited for it because we’re in the measurement business already, and running that program, and measurement specialists, and we’ve got some senior people in that area. But we started to look for kind of partners – you know TriAcc we always say we’re kind of system and company agnostic, whether it’s Clairifi or other emissions management systems we will help implement those things. Then we started to look at other partners and we did some alignment with a company called Vertex and they’ve got the kind of the field side of this thing. So, if you look at the emissions management in the old days as oil and gas companies, we had you know one person that looked after our emissions management for our company and did all our federal reporting and provincial reporting, and things like that. Under the new regulations and things, and when they started to price the carbon, all of sudden now we have to kind of expand our offering and move into different areas of our business with accounting, and joint venture, and agreements, and operations, and all those things being involved.

With Directive 60 changes and things like that, regulatory, environmental, consulting, and field services side, you know Vertex has given us a pretty stable partner to work in and we trust them. We’ve got other partners also but. And then if you look at the enhanced reporting and measurements services, we cover that off a little bit. And then with Clairifi, you know the equipment. Really what’s happened here is we’ve got to inventory all of our equipment and then we have to have process changes to keep our inventory of equipment up to date. We see it as kind of a pretty significant effort to run an emissions management program.

These next slides, you know accounting with purpose again it goes back to emissions reporting 10 or 15 years ago is different than it is today. Once we started to put a price on carbon and fuel flare and vent, and just our ESG reporting, trying to attract investment into our business. We now, all of a sudden have to get our whole company involved in this. And that’s what we see is trying to bring all different pieces of our company and understand, and I’m not talking TriAcc, Clairifi, or Vertex, but the individual oil and gas companies, cement plants, or whatever it is, try to understand the regulations so that we can transfer data and reduce the redundancy of systems and things like that.

So, if you have one system – in oil and gas we’ve got field data capture system, moving our data from field capture to an emission management system, then into production accounting, provincial reporting, and then over to our accounting systems. Looking to make sure that our systems are set up along the way. You know one equals one equals one in each system.

When we go in and help companies manage their initial management software implementations typically it’s a lot about data. When you can look at the data clean up early on now in your systems cycle then you can save yourselves time later.

You know the automated accounting analytics, one of the things that we see why their doing all this is that if you measure it, it goes back to that statement, if you measure something then you can get better at it. This isn’t going away. I’ve talked to a lot of oil and gas presidents and things like that, and we all want it to go away but it’s not going away. So, it’s kind of that lead, follow or get out of the way category. So, we’ve got to shift from the past and move into the future. The people on this call, a lot of you guys are people are instrumental in your accounting, in your operations, in your business. Start kind of taking it to your management and let them know that it’s here and it’s not going away. It’s going to cost us money, but we think that there’s ways to reduce the money that costs to the business.

So, capitalize on compliance. What we see also at the federal level, whether it’s in Canada or elsewhere, the administration typically is a little bit less. When you start getting into the provincial programs then the administration becomes a little bit harder. So, when you’re opting into one of these programs, whether it’s TIER, or the Saskatchewan OBPS system do your math on the cost also. Whether it’s internal dollars, brown dollar thing. Or whether it’s external dollars where you got to pay to a company like TriAcc or Vertex or Clairfi. Do you math and make sure you’re looking at the right numbers.

The big thing for us as an industry, whether it’s oil and gas, or cement, or building manufacturers, or outside industries, any manufacturing business really is that we don’t get to use our fuel flare or vent. They’re no longer free. Previously in Alberta, Saskatchewan, or Western Canada we used to be able to use our fuel for free. Part of our joint venture account said that we can use the fuel for free. That’s no longer the case. It’s costing us whether you’re in the TIER program, or the federal program. On the federal program, if you do the math, it’s 10.345 cents per liter that equates to about $100 in e3m3. On a provincial basis, from the slides Corey showed you before, that’s about 10 bucks. Don’t quote me on that. It’s in that neighborhood.

So, it’s no longer free. We used to only have the opportunity cost of using it so it’s something that we used in our manufacturing process and couldn’t sell. Now there’s not only the opportunity cost, but there’s also the cost in the fuel charge itself.

So, the big thing that we tell people is make sure you have the right volumes in the right buckets so, your fuel flare vent volumes. If you move e3m3 out of your fuel which is in the taxable category in the TIER program or the Saskatchewan, you save yourself 10 bucks. Plus or minus. If you multiply that by 8000 e3m3 a month you’re talking about significant volumes.

Then the other side is the governments have come out with a tonne of programs to help us reduce our emissions. Like there’s some programs out there where you can reduce your pneumatic devices from high bleed to low bleed, and there’s inventory programs you can get money for. Understand those things and take advantage of them if you think they’re valuable to you. These programs come with costs. There’s administrative cost, and there’s also the ability sometimes to give up your carbon credits. Carbon credits become valuable at some point in the future.

Ensure strategic alliance, the carbon tax regimes – understand what’s going on and make sure that you’re not duplicating payments. If you think you’re in TIER versus the federal carbon tax, make sure you’re in the right program for your company. Do the analytics on it.

COREY Peter one more thing here. I think on this slide my understanding is most of the attendees today accountants, financial accountants, production accountants perhaps - typically we’d find ourselves at the end of the story. There would be plans about reducing admissions in the field. The group would go out and implement those plans. The regulatory group would then quantify those emissions. And then at some point that data kind of gets to the financial accountant that has to pay the carbon tax.

I would certainly suggest that those that find themselves in that position try to get themselves more towards the front of that story. More into chapter one. Unfortunately, some of these things lead to the unfortunate circumstances, where reducing my emissions – I can put in a project. I can reduce my emissions. If I’m not looking at it from a carbon tax perspective, I can actually do the right thing environmentally that then hits me in the pocketbook. So, for example I might reduce my flare volume by using that gas and using it to electrify something on my site. If I haven’t looked at it from a regulatory perspective and really considered the carbon tax regime that I’m in, I might actually reduce my emissions, increase the efficiency of my organization, and also increase the carbon tax obligation that I have to pay.

So, I think what we are really trying to say here is in a lot of these diagrams and certainly the emissions management trifecta is that we can no longer operate in silos. We really have to sit at the table together as measurement production accounting, regulatory, emissions, production accounting and financial accounting because we all have a piece of this puzzle now. And we’ll need to understand what’s happening before we then move forward with a project. And so certainly this kind of detailed approach to accounting is what’s required to be able to have an effective conversation about that.

PETER Thanks Corey. So, the path forward. Accurate, transparent, reliable, your data. So, make sure that your systems are in place whether its Clairifi, there’s people using Excel out there. TriAcc, we looked at a bunch of different kind of options. And we’ve partnered with various different software firms. And Corey, and Clairif we’ve implemented his system at quite a few companies now. And what we always look for is making sure that the systems are set up so that they flow from field data capture systems into Clairifi, and into production accounting. So we have a one to one-to-one relationship.

The Alberta government, and this is specific to Alberta but it’s really Western Canada, we’re really looking to – there’s different level of reports we have to submit. Whether it’s in Petrinex, or OneStop, now if you’re in TIER you’ve got to do that. They have now the ability with the transparency of data across all government to be able to kind of cross reference what you are reporting. I don’t know if any of you guys have gotten their report card that AER published. But that’s about reporting one in one system and two in another system. And so, they’re checking us on that stuff. So, make sure that whatever you’re using as your BOS (Business operating system) system transfers into the other systems. That talks about point two. And it’s not only about the emissions management system but set it up so that you when you push your volumes into your production accounting systems that they’re mapped correctly. And then furthermore when you start doing the accounting and putting value on fuel, make sure your systems like Pandell are setup so that your transfer of data is pretty easy. If in Pandell you use a cost center make sure the cost center is setup in your system. Or, if it’s a UWI cross reference make sure that. So, you can-do push-button kind of processes.

The other side that – typically what we recommend that people to do is push from the field data capture system into a system like Clairifi, then into production accounting, and then through to financial accounting software. There’s a different path on that too. You can go from field data capture system into an emissions management system like Clairifi, and then back into the field data capture system, and then push out to production accounting. But we’ve seen the step processes from field data capture into an emissions management system and then out.

One of the other areas in part of our businesses, review and update agreements, this is not a tax it’s a charge. There’s a little bit of nuances or differences but we think that from so far from we’re seeing, and we’re not high-level tax accountants, so far from what we’re seeing it’s deductible from an income tax point of view. And it’s chargeable to the joint account. And the costs associated with it are chargeable to the joint account we think. So, PASC if you’re a member of PASC they’ve published a couple of papers on it, and I know that PGVA is looking at this also. So, make sure your agreements are updated. Back 10 or 15, it’s probably about 10 years ago we saw an agreement where somebody had put in that they operating company owned all the carbon credits. And that wasn’t even on our radar back then. Understand what it means the words in your agreements.

The other side is, as oil and gas we’re coming into a lot of asset acquisitions and dispositions and so make sure that you are understanding the implications of the field charges at the various jurisdictions. When you’re doing your final statement of adjustment, under TIER in Alberta for example, the owner at December 31st is responsible for the whole year. So, if you buy something mid-year you’ve got an adjustment to your FSOA. So, things like that. Start really looking at the big picture and putting in clauses to those types of agreements.

The other question then becomes TIERS and annual programs. At June 30 here coming up we’re going to have a bill as an industry. We’ve seen bills in some of the companies we manage up to $750,000. So, not insignificant amounts of money. At a federal level if they’re in the federal program that would be $7.5 million. Again, saving costs and things like that. But should we be booking that on a monthly basis? Or do we did it as an annual cost? So, things like that, that we have to start considering from an accounting point of view. Are we going to be the bankers as operators for carbon tax? That’s a choice that your individual company probably has to make, and things the organizations we see have to get into.

The last kind of point here. There’s a lot of talk about carbon credits and things like that and you’ll keep carbon credits on your books potentially. They become an asset to your company. When do you sell them? When do you keep them? It almost becomes a commodity trading thing just like we are selling natural gas. If you’re hedging oil. So, there’s going to be implications on your financial statements and how do you record that stuff?

So, the path forward for us as individual companies – the big companies they’ve got a lot of people so the smaller guys we have to pay attention to this. So, monitor your regulatory changes. Ensure your representatives are watching closely. There’s tonnes of emails you can sign up to like ADPs got an email, AERs got emails, things like that.

Joint committees or industry groups to stay engaged. Don’t be silent on this stuff. And if you’re in a jurisdiction that doesn’t have it get involved. If there’s not a group that represents your company size create one. This is a value to your company. So, don’t be silent.

And then the other thing that we’d say is on the carbon tax side things start to educate your company and include it in your day-to-day discussions. And make sure that you are engaging your company so that people are aware of what’s coming. That’s all we have. Right Corey?

COREY Perfect. Well done.

ELIZA WITH PANDELL That was wonderful. Thank you so much Peter and Corey. I’m going to dive right into questions. Starting with, where do the carbon credits come from and how do you attach a value to them?

COREY I can take that one and start anyways Peter and then you’re welcome to fill in my gaps. We think of it like a cap-and-trade system, carbon credits. It’s typically someone that’s in a compliance position or someone that for example, if we talk about TIER. Those companies that emit over their performance benchmark have a penalty to pay. And we always just usually talk about it like you send a cheque into the government, and honestly that’s what you’re going to do. However, what the government does with that cheque is create credits that become available in this fund. And then those companies that are in position to receive credits can now get that from that fund. So, you can think about it like bad emitters they create the carbon credits that are then available for the good emitters to grab or to buy. That’s typically called a performance credit, an emissions performance credit.

There’s also, what we call offset credits. And so, offset credits are generated by those companies that are out doing voluntary actions to reduce their emissions. Peters already touched on one of those offset type protocols for pneumatic instruments. So, if your company goes out and replaces your high-bleed pneumatic instruments with either low-bleed or no-bleed. That action is voluntary until January 1, 2023 at which point you then have to do that. But if you were to do that before that date then that’s a voluntary action that offsets carbon, offsets emissions and therefore you get rewarded through the generation of carbon credits that you then have sell, trade, or put towards perhaps a future compliance obligation that you have in another area.

ELIZA WITH PANDELL Can you recommend any courses for someone who wants to learn more about this entire process of this carbon tax issue?

PETER I don’t know if there’s any out there. We’ve just been reading regulations. If you want to learn more reach out to me and my email is there, and we can have a chat. I don’t know everything but – and that’s the big thing this is such a diverse area I don’t think anybody really knows everything. So, reach out and we’ll put you in touch with people that we think can help you.

ELIZA WITH PANDELL Good point. Okay thank you. How do you see emissions accounting in terms of addressing other types of pollutants? Are industries starting to ask about managing all type of pollutants throughout their operations and supply chain?

PETER I had a discussion with a CFO, it was probably a month ago, and I said to him within five years you’ll have three people, and you’ll call them emission accountants in your company. It’s an expanding area there’s no question about it. The ESG reporting that we’re going to be under over the next – you know there’s tonnes of changes on that side also and it’s going to affect our way of life and how we operate in our business. And if it’s not there yet, it’ll be there in the future. I think and Corey I don’t know if you have anything to add on that?

COREY No I think that’s great. I think from right now we’re only seeing carbon pricing attached to greenhouse gas emissions, those that which have the global warming effect. However, there’s still stringent requirements around reporting air pollutants. Sort of the you know the cousins to greenhouse gas emissions if you will. Those that which pollute the air and cause smog and all those types of issues.

I personally am not seeing a cost yet on NOx (Nitrogen Oxides) emissions for example. But NOx emissions are very well regulated and have lots of reporting requirements and limits around them. So, ensuring that you’re accounting for them and understand correctly and confidently is certainly something that will provide value moving forward.

ELIZA WITH PANDELL Okay great. Okay moving on. With all these systems feeding in does this help avoid duplication on input by each group and help with consistency across data?

COREY I think I can quickly say something but then pass it over to Peter because I think he’ll have more than I do. Certainly, from the Clairifi perspective we’re very excited to see the reduction in administrative time spent month-to-month moving this data around. So, for example production accounting cycles, we typically see them anywhere between maybe 10 to 20 days in a month depending on what your current process is. And we’re seeing after full implementation of the Clairifi product integrated with the two systems that that time frame is cut to at least half. We’re seeing even better reductions there. Does that reduce the amount of work those folks do in a month? No, I wouldn’t suggest that but what I would say is that it leaves them with more time to do the things that provide more value.

So, it’s within those days that our users are using Clairifi to find meter discrepancies. Issues within their accounting system that was duplicating meters and resulting in the over reporting of fuel. Which would then result in the over reporting of a compliance obligation or carbon cost. So, absolutely I do think that this approach of getting these systems to integrate together, it may not reduce the amount of people we need, or the amount of time we need to spend but I do think it turns that time into more value for us for sure.

PETER Yeah, I think the only thing that I would add is understand what your book of record is. What’s your BOS system in the thing and where do your BOS relationships in your systems reside? Once you understand that then you can create checks and balances to ensure that what you have in your system is reported to the government. That’ll save you time because of the multi approaches on where we got to report. So, I think we know the governments are looking across the public data. Now you can get Petrinex data for the whole industry in Alberta. That would be it.

ELIZA WITH PANDELL Okay thank you. Let’s keep going then. Are credits issued on volumes or on dollars?

COREY The third option actually “C”. Typically, mass. So, we would typically look at tonnes of CO2 equivalent to determine the number of credits. So, typically one credit equals one tonne.

ELIZA WITH PANDELL Okay excellent. That was a good one. Then how can a company use the carbon credits it creates? For example, can you sell access credits if there’s such a thing to other companies?

COREY Absolutely. Typically, you can use those credits and put them towards future compliance obligations. We see varying different rules but sometimes around 60%. So, instead of paying your obligation you can account for that 60% of that obligation with credits that either you have generated, you have bought from someone else that they had, or that maybe you’ve traded in some way to get those carbon credits.

We also see lots of strategies around carbon credits. We’ve talked about the cost of carbon is going up every year so that a credit that’s generated this year is worth maybe $40, by the time we get to 2030 that might be $170 for that credit. So, we just see people investing in them like they’re stocks. I don’t necessarily work with those people, but I hear those stories.

ELIZA WITH PANDELL Alright, moving on. Can companies choose a program to be in? And is there a deadline to choose? Are you in the federal program until you choose to be in the provincial program and how would you change that?

PETER I’ll tackle that. Yes, you’re in the federal program until you opt into a provincial program. Saskatchewan’s got the output-based system that you can now opt into if you’re under 10,000 tonnes and you have to make the statement to opt into it. Alberta’s got TIER and you can opt into that also. The deadline to opt into 2021 was December of 2020 but you can still opt in on a portion basis. So, you can still get into TIER but understand your costs. And if you have further questions reach out.

COREY Yeah, I would just say to that’s a very important question because the unfortunate truth is that there are companies right now that are racking up federal fuel charge bills that don’t really know that they’re racking up federal fuel charge bills. And they need to make a decision as soon as they can to get out of that position and get into one of these output-based pricing systems to stop that bill from climbing.

PETER Yeah, Eliza as a follow up. Good point Corey. We work with various different companies, but we had a company that paid a $100,000 in federal carbon tax. And because it’s on flare and fuel, and then they’ll pay $2,500 in the provincial. So, big money.

ELIZA WITH PANDELL Okay and it’s kind of on the topic of costs this sort of connects them. We have a question about so, with regards to the cost of implementing and maintaining the ability to better track your carbon emissions do you know if there are any provincial or federal grants available besides carbon credits to help implement new technologies?

COREY All I can say is that yes, there’s a lot of them right now. I’m no expert in them so I’m aware that they are there, and I typically pass those questions onto colleagues that do specialize in those funding programs. I mean now’s the time to definitely look at what’s available and get in touch with those folks that are working with applications and things like that.

ELIZA WITH PANDELL kay, and then we’ll move on to the last question that we have time for today. Are carbon credits company based or facility based?

COREY I think I’m going to go ahead and answer that question I think it’s company based. The way I’m understanding the question is if I generate a credit over at this facility that I own can I then use that credit to reduce my obligation for this other facility that I own? And the answer is yes. Typically, there’s a company that owns the credit and it’s not just specific to one facility that they have.

ELIZA WITH PANDELL Okay, thank you guys that was so much wonderful, useful information. Corey and Peter thank you so much for your time, for your expertise. I know it was highly valued.

PETER Eliza thanks. Thanks to Pandell and thanks for hosting us Eliza that was great.

ELIZA WITH PANDELL Our pleasure. Okay everyone thanks again for joining us today. Have a wonderful afternoon and we’ll hope to see you next time.

COREY Thank you.

ELIZA WITH PANDELL Bye.