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Tax and Revenue Administration
Application of the Carbon Levy to Natural Gas
Special Notice Vol. 11 No. 4R1


Last Reviewed: March 17, 2017
Produced by: Alberta Treasury Board and Finance, Tax and Revenue Administration
For more information: tra.carbonlevy@gov.ab.ca

Vol. 11 No. 4R1 / March 2017

SPECIAL NOTICE - APPLICATION OF THE CARBON LEVY TO NATURAL GAS

NOTE: This special notice is intended to explain legislation and provide specific information. Every effort has been made to ensure the contents are accurate. However, if a discrepancy should occur in interpretation between this special notice and governing legislation, the legislation takes precedence.

This notice explains the application of the carbon levy to the purchase and sale of natural gas under the Climate Leadership Act (Act) and the Climate Leadership Regulation (Regulation), which are administered by Alberta Treasury Board and Finance, Tax and Revenue Administration (TRA).

Application of the Carbon Levy to Raw Gas and Natural Gas

The intention of the Act and Regulation with respect to raw gas and natural gas is to delay the imposition of the carbon levy until the fuel is delivered to the end consumer. Therefore, the movement of raw gas and natural gas downstream to the point where natural gas enters a transmission pipeline is not subject to the carbon levy. Fuel sellers are not required to remit the carbon levy in respect of sales of fuel that continues to move downstream, nor are the respective purchasers required to provide to the fuel sellers carbon levy exemption certificates or other evidence of exemption in order to purchase such fuel exempt from the carbon levy. However, a liability for carbon levy is triggered if raw gas or natural gas is moved from a fuel production facility in certain circumstances described below.

Transactions in natural gas in a transmission pipeline are not subject to the carbon levy if the natural gas is sold but not delivered. Additionally, the movement of natural gas into a commercial storage facility from a transmission pipeline and back into the pipeline is not subject to the carbon levy. In both cases, there is no requirement for fuel sellers to impose the carbon levy on its customers and no requirement for purchasers to provide any evidence of exemption in order to purchase, exempt from the carbon levy, fuel that is not delivered.

A liability for carbon levy is triggered at the time fuel is removed, in Alberta, from a transmission pipeline unless the fuel is moved into a natural gas distribution system or straddle plant. Where fuel is removed from a transmission pipeline but does not enter a natural gas distribution system or straddle plant, the person that purchases or otherwise receives the fuel is responsible for calculating and remitting the carbon levy to TRA. When fuel is moved into a natural gas distribution system and delivered to a consumer, the natural gas distributor is responsible for calculating and remitting the carbon levy.

Being registered as a direct remitter under the Act and Regulation does not, by itself, enable a person to buy natural gas (or any other fuel) exempt from the carbon levy. Whether or not the carbon levy is payable on a transaction involving raw gas or natural gas depends upon where the fuel is located at the time of the transaction, to where the fuel is delivered, and whether or not the purchaser holds a valid carbon levy exemption certificate or other evidence of exemption in respect of the fuel being purchased.

Definitions

With respect to natural gas:

  • “direct remitter” means a person required to remit the carbon levy payable to TRA in accordance with the Act and Regulation at the time natural gas is provided in Alberta;


  • “natural gas distribution system” means a system, not including a transmission pipeline, by which natural gas is distributed to recipients, including, in certain cases, a compressed natural gas distribution infrastructure;


  • “natural gas distributor” is a person that measures a recipient’s natural gas consumption on a regular basis for the purpose of billing the recipient directly, or providing a retail dealer with the recipient’s billing information; and


  • “natural gas service provider” is a person that issues bills to recipients, collects amounts owing, and responds to customer billing enquiries, for example, a retail dealer or natural gas distributor.

The term “fuel production facility” is not defined in the Act or the Regulation, but is a term that is used by TRA to represent any of the following production facilities:

  • gas battery,


  • gas gathering system,


  • gas processing facility,


  • gas well,


  • oil battery,


  • oil production site,


  • oil sands processing plant, or


  • straddle plant.

Sales of Natural Gas or Raw Gas from a Fuel Production Facility

No carbon levy is payable at the time natural gas or raw gas is moved upstream and through the fuel production facility without sale or removal. Where natural gas or raw gas from within the fuel production facility is used to operate the facility, carbon levy is payable unless a carbon levy exemption certificate has been issued in respect of the use of the natural gas or raw gas in this situation.

No carbon levy is payable at the time raw gas or natural gas is sold or removed from a fuel production facility and is delivered to a gas battery, gas gathering system, gas processing facility, transmission pipeline or natural gas distribution system. In such cases, the fuel seller should not charge and is not required to remit the carbon levy to TRA. If the gas is delivered to one of these facilities, the purchaser may purchase the fuel exclusive of the carbon levy without having to present a carbon levy exemption certificate or other evidence of exemption to the fuel seller.

However, when raw gas or natural gas is sold from a fuel production facility and delivered to somewhere other than to a gas battery, gas gathering system, gas processing facility, transmission pipeline or natural gas distribution system, the purchaser of the gas must present the fuel seller with a valid carbon levy exemption certificate or other evidence of exemption in order for that fuel to be purchased exempt from the carbon levy. Being registered as a direct remitter does not, by itself, enable a person to purchase fuel exempt from the carbon levy in this situation. Rather, a carbon levy exemption certificate or other evidence of exemption is required.

If raw gas or natural gas is sold or removed from a fuel production facility and

  • the gas is delivered somewhere other than a gas battery, gas gathering system, gas processing facility, transmission pipeline or natural gas distribution system, and


  • the fuel seller is not presented with a valid carbon levy exemption certificate or other evidence of exemption by the purchaser,

then the fuel seller must remit the carbon levy to TRA and is entitled to charge and collect the carbon levy from the purchaser in order to recover the carbon levy remitted.

When raw gas or natural gas located in a fuel production facility is sold but not delivered, the fuel seller should not charge and is not required to remit the carbon levy to TRA. The purchaser may purchase the gas exclusive of the carbon levy without having to present a carbon levy exemption certificate or other evidence of exemption to the fuel seller.

Sales of Natural Gas from a Transmission Pipeline

No carbon levy is payable at the time natural gas in a transmission pipeline is sold but not delivered. In such cases, the seller of the fuel should not charge and is not required to remit the carbon levy to TRA. The purchaser may purchase the fuel exclusive of the carbon levy without having to present a carbon levy exemption certificate or other evidence of exemption to the fuel seller.

At the time natural gas is purchased or removed from a transmission pipeline, the person purchasing or removing the fuel from the transmission pipeline is required to remit the carbon levy payable on the fuel unless the fuel is delivered to a natural gas distribution system or straddle plant, or the person purchasing or removing the fuel holds a valid carbon levy exemption certificate for natural gas. However, this only applies if the purchase results in the natural gas being removed from the transmission pipeline. If the natural gas remains in the pipeline, the guidance set out in the immediately preceding paragraph applies.

Natural Gas Sold from a Natural Gas Distribution System
(Including Sales from One Natural Gas Distribution System to Another)

When natural gas is sold or removed from a natural gas distribution system, carbon levy is payable unless the consumer of the fuel holds a valid carbon levy exemption certificate or other evidence of exemption and presents it to the respective natural gas service provider or fuel seller.

When natural gas is sold from a natural gas distribution system, the natural gas distributor is required to remit the carbon levy payable on the fuel to TRA. The natural gas distributor is entitled to charge and collect the carbon levy from the natural gas service provider, which in turn collects it from its customers. A natural gas distributor is required to register with TRA as a direct remitter.

No carbon levy is payable at the time natural gas is moved from one natural gas distribution system into another. Accordingly, no carbon levy is to be remitted at that time. In such cases, the purchaser (from the second natural gas distribution system) receiving the fuel must provide written notice to the fuel seller (from the first natural gas distribution system) that the fuel is being moved to another natural gas distribution system. Therefore, the fuel seller will be made aware that the transaction is not subject to the carbon levy. Such notice may be in the form of a letter that includes a statement by the purchaser confirming that the fuel is being moved to another natural gas distribution system. The fuel seller should retain a record of such notice in the event of an audit. The final purchaser in the natural gas distribution system is responsible for ensuring that the carbon levy is charged and remitted to TRA at the time non-exempt sales are made to consumers from the natural gas distribution system.

Licences

In general, a licence entitling a person to purchase fuel exempt from the carbon levy will not be issued in respect of natural gas.

As explained above, transactions in natural gas in a transmission pipeline are not subject to the carbon levy if the natural gas is sold but not delivered. In such cases, neither a licence nor a carbon levy exemption certificate is required in order to purchase, exclusive of the carbon levy, fuel located in a transmission pipeline. As such transactions are not subject to the carbon levy, traders of natural gas that never take physical possession of the natural gas outside of the transmission pipeline are not required to hold any evidence of exemption, and are not subject to any particular reporting or remitting requirements.

Compressed Natural Gas

For the purposes of the Act and Regulation, natural gas includes compressed natural gas. Accordingly, the carbon levy applies to compressed natural gas in the same way as it applies to (other than compressed) natural gas, as explained above.

A system of transporting compressed natural gas to consumers may be considered to be a natural gas distribution system for the purpose of the Act and Regulation if:

  • the compressed natural gas is removed from a fuel production facility, transmission pipeline or natural gas distribution system, and


  • the fuel is transported for the purposes of providing the fuel to a consumer of natural gas that is not the person operating the compressed natural gas transportation system.

No carbon levy is payable at the time compressed natural gas is moved from one natural gas distribution system into another. Accordingly, no carbon levy is to be remitted at that time. In such cases, the purchaser (from the second compressed natural gas distribution system) receiving the fuel must provide written notice to the fuel seller (from the first compressed natural gas distribution system) that the fuel is being moved to another compressed natural gas distribution system. Therefore, the fuel seller will be made aware that the transaction is not subject to the carbon levy. Such notice may be in the form of a letter that includes a statement by the purchaser confirming that the fuel is being moved to another compressed natural gas distribution system. The fuel seller should retain a record of the notice in the event of an audit. The final purchaser in the compressed natural gas distribution system is responsible for ensuring that the carbon levy is charged and remitted to TRA at the time non-exempt sales are made to consumers from the compressed natural gas distribution system.

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Additional Information

For additional information on the Carbon Levy, please visit the Carbon Levy Overview page on our website.

For general questions about the Climate Leadership Plan, please refer to the Climate Leadership Plan website at http://www.alberta.ca/climate-leadership-plan.aspx.

For questions about the administration of the carbon levy program, please email us at TRA.CarbonLevy@gov.ab.ca.

 



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