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Tax and Revenue Administration
Definition of Production Process
Special Notice Vol. 11 No. 5


Last Reviewed: December 22, 2016
Produced by: Alberta Treasury Board and Finance, Tax and Revenue Administration
For more information: tra.carbonlevy@gov.ab.ca

Vol. 11 No. 5 / December 2016

SPECIAL NOTICE - DEFINITION OF PRODUCTION PROCESS RE: INTEGRAL ACTIVITIES

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.

Under the Climate Leadership Act (Act) and Climate Leadership Regulation (Regulation), a consumer is exempt from paying the carbon levy on fuel that is used in a production process before 2023. This notice provides information on the types of activities that are considered to be “integral” to the activity that is part of a production process.

This exemption has been provided to the oil and gas sector in recognition of the work industry must undertake to meet the methane reduction targets that were announced under the Climate Leadership Plan.

Definition of Production Process

Production process means an activity integral to the drilling, completion, workover or abandonment of a gas or oil well.

Activities integral to the operation of the drilling, completion, workover or abandonment of a gas or oil well are considered to be activities that result in the release of direct emissions from:

  1. the use of fuel (other than clear gasoline or clear diesel) in non-vehicular machinery and equipment used on-site to drill, complete, rework or abandon a gas or oil well,

  2. the use of fuel (other than clear gasoline or clear diesel) in an unlicensed vehicle or vehicular machinery and equipment used on-site to drill, complete, rework or abandon a gas or oil well, or

  3. the flaring or venting of fuel at a gas or oil well during drilling, completion, workover or abandonment of the gas or oil well.

Production process also means an activity integral to the operation of:

  1. a gas or oil well,

  2. a gas battery,

  3. a gas gathering system,

  4. a compressor station or facility (see Special Notice Vol. 11 No. 6),

  5. a gas processing facility,

  6. a gas fractionation plant,

  7. a straddle plant,

  8. an oil battery, or

  9. an oil production site, other than an oil production site that includes one or more thermal oil wells,

Activities integral to the operation of one of the above (A) to (I) are considered to be activities that result in the release of direct emissions from:

  1. the use of fuel (other than clear gasoline or clear diesel) in non-vehicular machinery and equipment used to run mechanical or processing equipment on-site or at the facility,

  2. the use of fuel (other than clear gasoline or clear diesel) in unlicensed vehicles or vehicular machinery and equipment used for day to day operations or processes at or within the site or facility, or

  3. the flaring or venting of fuel on-site or at the facility.

Production process does not include an activity in the operation of a specified gas emitter.

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Examples of Integral Activities

Examples of activities that are considered to be integral to operations for the purpose of the definition of production process may include, but are not limited to:

  • the provision of heat and electricity for processing equipment at the facility,

  • the operation of mechanical equipment, such as pumps and compressors, or unlicensed vehicles or vehicular equipment for moving products, inputs or wastes within the site or facility,

  • the operation of processing equipment at the facility,

  • the provision of heat and electricity for buildings that house the equipment and instrumentation for the site or facility referred to in (A) to (I), above, or

  • the processing of liquid outputs from a site or facility described in (A), (H) or (I), above, to extract a fuel or product that is not otherwise suitable for delivery to a refinery for export without further processing.

As these activities are considered to be integral to operations for the purpose of the definition of production process, fuel used in respect of these activities is exempt from the carbon levy.

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Examples of Non-Integral Activities

Examples of activities that are not considered to be integral to operations for the purpose of the definition of production process may include, but are not limited to:

  • the clearing and preparation of land on-site or at the facility,

  • the construction or maintenance of buildings on-site or at the facility,

  • the construction or maintenance of roads leading to the site or facility, on-site or at the facility,

  • the provision of heat and electricity for buildings used for offices, food service, or accommodation for workers and contractors (work camps),

  • the hauling or delivery of material or product to and from the site or facility,

  • the use of clear gasoline or clear diesel for any purpose,

  • the use of a compressor station or facility to move natural gas in a transmission pipeline,

  • the transportation of staff,

  • the disposition of waste or the operation of a waste disposal facility, or

  • the reclamation or remediation of the site.

As these activities are not considered to be integral to operations for the purpose of the definition of production process, fuel used in respect of these activities is not exempt from the carbon levy.

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Fuel Supplied by a Contractor

A contractor that supplies its own marked gasoline, marked diesel or other fuel in the provision of services to an operator at a site described in (A) to (I), above, may apply to Alberta Treasury Board and Finance, Tax and Revenue Administration, for a carbon levy exemption certificate entitling the contractor to purchase the fuel exempt from the carbon levy for use in an exempt production process. However, a carbon levy exemption certificate will only be issued to a contractor if the contractor is able to demonstrate that at least 80% of the fuel to be purchased is expected to be used to provide services in respect of a production process during the calendar year in which the fuel is to be purchased.

Contractors may apply for a carbon levy exemption certificate by completing and filing Form AT5102, Carbon Levy Fuel User Exemption Application and the respective Form AT5110, Schedule B − Oil and Gas Production Process. For information on completing these forms, please see the Completion Guide.

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Use of Exempt Fuel

If a consumer purchases fuel exempt from the carbon levy for use in a production process, but subsequently uses some or all of the fuel for a non-exempt purpose, the consumer is required to report and remit the carbon levy in respect of the portion of the fuel used for the non-exempt purpose. The return must be filed using the on-line Self-Assessing Consumer Return available on Tax and Revenue Administration Client Self-Service (TRACS). For additional information on TRACS, please visit the TRACS overview page on our website.

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Generation of Electricity On-Site

Where fuel is used on-site to generate electricity for use in both exempt and non-exempt purposes, the consumer may only claim the exemption in respect of the portion of fuel that corresponds directly to electricity used for an exempt production process. If the fuel used to generate electricity in respect of an exempt production process is not metered separately from the fuel used to generate electricity for a non-exempt purpose, then a reasonable estimate of the exempt and non-exempt uses should be determined and records supporting the determination maintained for audit purposes.

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Additional Information

For additional information on the Carbon Levy, please see TRA's Carbon Levy Publications and Forms page.

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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