Category: Green News

Ontario’s cap-and-trade program design options released for further consultation

In the lead-up to Paris climate talks (COP 21), the Ontario government has released a consultation paper that sets out the early details of how Ontario’s proposed cap-and-trade program will work. The proposed program details are not final and are subject to further consultation before a final cap-and-trade regulation is expected to be issued in spring 2016.

Ontario’s proposed cap-and-trade system would commence on January 1, 2017 and the cap on greenhouse gas emissions would decline by 3.7% in each of the following three years, falling to 15% below 1990 levels by 2020. It is anticipated that the cap-and-trade program will have a broad reach and most sectors of the economy will fall under the cap including heavy industry, transportation fuel (including gasoline and natural gas), and electricity generation.

Since the transportation sector accounts for a significant portion of the province’s overall emissions, a carbon price on transportation fuels will seek to incentivize drivers to choose alternative means of transportation. The Canadian Fuels Association has estimated that if Ontario’s carbon allowances trade at the same minimum price as those under Quebec’s cap-and-trade system, the cost of gasoline will initially increase by at least 3.6 cents per litre, rising to 4.6 cents by 2020.

In order to provide some relief to certain trade-exposed sectors, the Ontario government has proposed allocating free allowances to certain industries, in some cases up to 100% for the first four years of the program. Under the cap-and-trade program, these industries will still be required to reduce emissions in order to comply with their obligations under the cap, but their compliance costs would be lower.

Consultations with industry and other stakeholders is ongoing, and as noted above, it is anticipated that the details of the cap-and-trade program will be finalized in spring 2016. As we reported earlier, Ontario has proposed changes to the provincial Greenhouse Gas Emissions Reporting Regulation, which will help to facilitate the linking of Ontario’s cap-and-trade program with the Quebec and California programs.

New Report from World Bank Points to Global Shift Towards Carbon Pricing

On September 20, 2015, the World Bank released its 2015 State and Trends of Carbon Pricing report (the Report), which shows the number of implemented or planned carbon pricing schemes around the world have almost doubled since 2012, and are now worth about $50 billion.

The Report indicates that about 40 national and 23 city, states and regions around the world are using carbon pricing schemes, like emissions trading systems (ETS) or carbon taxes. This represents about 7 gigatons of carbon dioxide equivalent, or 12% of global greenhouse gas emissions, a threefold increase over the past decade.

Based on a review of carbon pricing initiatives around the world (including emissions trading systems and taxes in places like British Columbia, the European Union, Denmark, Sweden, and the United Kingdom), the Report reinforces lessons learned to date – in particular, that well-designed carbon pricing schemes are a powerful and flexible tool that can cut emissions and if adequately designed and implemented, they can play a key role in enhancing innovation and smoothing the transition to a low-carbon global economy.

The Report points to a number of examples to demonstrate the shift to carbon pricing instruments worldwide, including:

• Launch of the South Korean ETS in January 2015.
• Approval of a national carbon tax by Chile to start in 2017.
• The European Union ETS is the largest carbon instrument in terms of value, followed by the trading systems in Korea and California.
• Ontario announced in April that it is joining California and Québec’s emissions trading systems.
• The EU and South Korea recently announced plans this week to explore linkage between their emissions trading systems.
• The US and China – the world’s largest greenhouse gas emitters – host the two largest national carbon pricing initiatives in terms of volume covered (as driven by initiatives in their states and provinces). In China, the carbon initiatives cover the equivalent of 1 gigaton of CO2e, while in the US, they cover the equivalent of 0.5 gigatons of CO2e.
• China currently has seven pilot carbon markets operating in major cities and provinces, and has plans to launch a national system in 2016.

It was also announced in September 2015 that more than two dozen cities in China and the US are making new pledges to lower emissions.

The Report also considers the issue of “carbon leakage”, whereby carbon pricing leads some industries and lead them to move production to other countries or jurisdictions where emission costs are lower. The Report notes that ex-post analysis of the EU ETS, the biggest cap-and-trade system in place today, shows that so far, carbon leakage has not materialized on any significant scale. The risk of carbon leakage will remain real as long as carbon price signals are strong and differ significantly between jurisdictions. However, this risk tends to affect a limited number of carbon intensive and trade-exposed sectors, which risk can be effectively mitigated through policy design.

The Report also discusses the enormous savings that can be made through cooperation between countries. Compared to domestic action alone, cooperation and linking of carbon pricing instruments across borders could significantly lower the cost of achieving a 2°C stabilization goal, because countries have more flexibility in choosing who undertakes emission reductions, and who pays for them. Based on an analysis of studies made over the years, the Report shows that this cooperation can mobilize resources and transfers between countries and investors, and result in net annual flows of financial resources of up to $400 billion by 2030 and up to $2.2 trillion by 2050.

Finally, the Report says that carbon prices that converge have a positive impact on competitiveness by favouring more efficient and cleaner sectors, leading to a more efficient economy.

The FASTER Principles

To help countries navigate the carbon pricing landscape, the World Bank Group, together with the OECD and with input from the IMF, also released a report on the FASTER Principles, which aims to help governments and businesses develop efficient and cost-effective carbon pricing instruments.

The FASTER principles are: F for fairness; A for alignment of policies and objectives; S for stability and predictability; T for transparency; E for efficiency and cost-effectiveness and R for reliability and environmental integrity.

Climate Change in the Spotlight

The spotlight is now on New York with the upcoming United Nations meeting on the new Sustainable Development Goals, Climate Week New York, and in about two months, global leaders will meet again in Paris for COP 21.

The decisions made in New York and Paris will set the course for development for years to come. But while these are top level, pivotal meetings, actors around the world are not waiting for a global agreement to act. They are already putting a price on carbon dioxide and other greenhouse gas emissions to drive clean investment. This includes the private sector. And we’ve seen companies from the oil and gas industry – calling for widespread carbon pricing. Today, over 400 businesses worldwide are using an internal price on carbon to guide their investments.

Ontario Releases Regulatory Proposal to Amend GHG Reporting Regulation

In support of the development and future implementation of its cap-and-trade system, Ontario’s Ministry of the Environment and Climate Change (MOECC) is proposing amendments to the Greenhouse Gas Emissions Reporting Regulation (O. Reg. 452/09) (the GHG Reporting Regulation). Under the current GHG Reporting Regulation, regulated facilities emitting 25,000 tonnes or more of carbon dioxide equivalent (CO2e) per year are required to report and verify their emissions. Once implemented, the proposed amendments will significantly increase the amount of emissions reported and the number of facilities reporting under the GHG Reporting Regulation.
The proposed amendments include the following:
• lowering the reporting threshold to 10,000 tonnes CO2e from the current threshold of 25,000 tonnes per year, while maintaining the requirement to have emissions greater than 25,000 tonnes per year third party verified;
• dividing the emission sources into those that are reporting only and those that require third party verification;
• adding petroleum product suppliers and natural gas distributors to the GHG Reporting Regulation starting in 2016; and
• adding other sources to the reporting regulation including:
– equipment used for natural gas transmission, distribution and storage,
– electricity imports,
– electricity transmission and distribution,
– magnesium production, and
– mobile equipment at facilities.
Similar to California, there will be no emissions thresholds for electricity importers, the purpose of which is to prevent them from sub-dividing into smaller entities to avoid compliance obligations.
The reporting threshold for liquid petroleum fuel distributors and suppliers will be set at 200 litres of fuel to ensure consistency with Québec requirements. The verification threshold will remain at 25,000 tonnes of CO2e, but any liquid fuel distributor and suppliers that exceed the 200 litre threshold will be required to verify their emissions reports. All electricity importers will be required to verify their emissions reports.
The amended GHG Reporting Regulation will also categorize certain emission sources as being subject to reporting requirements only, meaning that these emission will need to be reported, but would not be subject to verification or potential compliance requirements under the cap-and-trade program. These proposed categories include:
• fugitive geothermal units and hydrofluorocarbons (HFC) emissions from cooling units at electricity generators;
• coal storage emissions;
• biomass combustion emissions; and
• on-site emissions from mobile equipment.
The proposed amendments have been posted for a 45 day public review and the comment period will end on October 29, 2015. Comments may be submitted to the MOECC’s designated contact person or online.

Moving the Discussion Forward: Alberta Environment & Parks releases Climate Change Discussion Document

On August 14, 2015, the Alberta government released a Climate Leadership Discussion Document (Discussion Document) to lay the foundation for ongoing consultations with Albertans on climate change policy. The Discussion Document sets out the challenges the province faces, presents considerations and options for action, and offers questions to spur debate and discussion for stakeholders and members of the public. The Discussion Document is a follow up to the Alberta government’s June 2015 announcement that it was taking steps to achieve real, demonstrable reductions in the province’s greenhouse gas (GHG) emissions by tightening the requirements under the Specified Gas Emitters Regulation and appointing an advisory panel to undertake a comprehensive review of Alberta’s climate change policy.
The Discussion Document sets out the province’s new approach to climate change to:
• serve as an important commitment to protect the health of Albertans and our ecosystem;
• make a significant and meaningful contribution to Canada’s greenhouse gas reduction commitments and the global effort to mitigate climate change;
• ensure the continued strength and competitiveness of the province’s economy in a lower carbon world;
• advance innovation, encourage adoption of new technologies and support more renewable and cleaner sources of energy and conservation;
• acknowledge the interactions and coordinate with other related policy initiatives, including the royalty review, land-use plans, infrastructure planning and investment;
• provide open and transparent monitoring and regular reporting to Albertans on progress toward emissions reductions;
• foster partnerships with municipalities, provinces, territories, the federal government and First Nations and Métis communities; and
• ensure Albertans are engaged and part of the solution.
Following the review process, Alberta’s climate change advisory panel will provide its recommendations and advice to the Minister of Environment and Parks in fall 2015. Stakeholders and members of the public are encouraged to engage in public meetings and taking the online survey.

 

Alberta’s Carbon Price to Increase as the Province Moves Toward Climate Change Policy Renewal

Alberta’s new Premier, Rachel Notley, expects to have a long-term climate change strategy in place for the province before she travels to the Paris Climate Conference (COP21) in December 2015. In taking up the mantle of climate leadership, Alberta’s Minister of Environment and Parks, Shannon Phillips, announced on June 25, 2015 that the government is moving forward with a two-step process for renewing the province’s climate change policy.
The centrepiece of Alberta’s climate change program is the Specified Gas Emitters Regulation (SGER), which came into force in 2007. Under the current regime, Alberta requires any facility emitting 100,000 tons or more of greenhouse gases (GHG) a year to reduce their emissions intensity by 12%. Following Minister Phillips’ announcement, the stringency level is set to increase:
• 15% as of January 1, 2016
• 20% as of January 1, 2017
There are four ways companies can comply:
• by making improvements to their operations;
• using Emission Performance Credit (if a facility reduces its emissions intensity to below its reduction target, it is eligible for an emission performance credit which are used to counteract the emissions of the facility);
• purchasing Alberta-based emission offset credits; and/or
• contributing to the Climate Change and Emissions Management Fund (the Fund).
The price of carbon for regulated entities choosing to pay into the Fund is also scheduled to increase:
• in 2016, $20 for every ton over a facility’s reduction target; and
• in 2017, $30 for every ton over a facility’s reduction target.
In addition to renewing and bolstering the SGER, the province appointed Professor Andrew Leach from the University of Alberta to chair an advisory panel to develop a more ambitious climate change regime in advance of COP21 in December 2015. The advisory panel has a mandate to carry out stakeholder consultations and prepare a discussion paper by the early fall which will inform the development of a new provincial climate change strategy. Indications are that the panel will undertake a comprehensive review and all options will be considered, including a carbon tax and a cap-and-trade scheme which could link with other jurisdictions such as Quebec or California. It is uncertain which aspects, if any, of Alberta’s unique emissions intensity scheme will survive the panel’s review. However, Alberta’s new NDP government seems keen to show that it is willing to commit to a higher carbon price and more stringent emission reduction targets, which will help to lend credibility to future climate change policy measures that it will be introducing in the coming months.

British Columbia joins Sub-National “Under 2 MOU” Climate Change Initiative

On May 19, 2015, British Columbia (BC) joined a new sub-national climate change initiative known as Under 2 MOU. The Under 2 MOU brings together states and regions willing to commit to reducing their greenhouse gas (GHG) emissions and will galvanize action at the Conference of the Parties (COP 21) in Paris this December. The founding signatories, who were present at the May 19 signing ceremony in Sacramento, California, include the following:
• Acre, Brazil
• Baden-Württemberg, Germany
• Baja California, Mexico
• British Columbia, Canada
• California, USA
• Catalonia, Spain
• Jalisco, Mexico
• Ontario, Canada
• Oregon, USA
• Vermont, USA
• Wales, UK
• Washington, USA
The Subnational Global Climate Leadership MOU is nicknamed “Under 2 MOU” in reference to (i) the goal of limiting warming to below 2°c, and (ii) the MOU’s shared goal of limiting greenhouse gas emissions to 2 tons per capita, or 80-95% below 1990 level by 2050. By joining the Under 2 MOU initiative, signatories also commit to establishing midterm targets, increasing energy efficiency and renewable energy, coordinating on a number of issues from transportation to short-lived climate pollutants, and working towards consistent monitoring, reporting, and verification of their emissions. All signatories will submit an appendix to the MOU that will outline their unique set of actions and plans to reach their goals.
The Under 2 MOU originated from a partnership between California and Baden-Württemberg out of the desire to bring together ambitious states and regions willing to make a number of key commitments towards emissions reduction and to help galvanize action at COP 21. Jurisdictions are invited to sign the MOU up to COP 21 in December. Interested jurisdictions are asked to submit a letter expressing their intent to sign on to the MOU and to complete an appendix that outlines the unique set of actions that are in place or planned to reach their emissions reduction targets.
According to the United Nations Development Program (UNDP), 50 to 80% of the mitigation and adaptation actions necessary to tackle climate change will be implemented at the subnational or local levels of governance. Subnational governments are particularly well placed to address climate change for a number of reasons, including:
• They are often responsible for the development and implementation of policies that have the most impact on climate change, including in the following areas: air quality; transportation; energy and energy efficiency; the built environment; natural lands; technology innovation, development, and transfer; and others that have direct implications for greenhouse gas emissions levels.
• Sub-national governments often serve as the laboratories for policy innovations which are then adopted at the national and even international level.
• Sub-national governments provide the critical link in the vertical integration of climate policies between national and local governments.

Ontario Resurrects Cap-and-Trade

Following recent public consultations on its Climate Change Discussion Paper, Ontario is expected to bring in a cap-and-trade system which reports say could raise between $1 billion to $2 billion per year, depending on the price of carbon permits. Ontario Environment Minister Glen Murray is expected to present the plan to cabinet for approval by mid-April 2015. Under a cap-and-trade system, a limit is placed on total greenhouse gas (GHG) emissions with the price of carbon being determined by the market. Under the system envisioned by Ontario, the cap will be divided into permits, some of which will be given away (to maintain competitiveness, particularly where a particular industry is trade sensitive) while the remaining permits will be auctioned off. Regulated emitters will be required to obtain a sufficient number of permits to cover their emissions and where emitters are able to reduce emissions, they will be able to sell permits to those emitters who need more. The auction proceeds will likely be directed into GHG emission reduction initiatives such as energy conservation retrofitting.

Once implemented, Ontario’s system could be linked with Quebec and California’s current cap-and-trade program, which would create a carbon market of 61 million people that covers more than 60% of Canada’s population. Ontario’s cap-and-trade plan has been waiting in the wings for a while. The province agreed to price carbon when it joined the Western Climate Initiative with Quebec, B.C. and California in 2008, and subsequently the Ontario government passed enabling legislation for a cap-and-trade system. However, cap-and-trade soon took a back seat to the recession and political uncertainty meant that there was little appetite for moving forward with climate change plans. With Ontario Premier Kathleen Wynne taking a climate leadership role, there is new impetus for bold action on GHG reduction initiatives at the provincial level.

Washington State introduces Comprehensive Climate Change Initiatives

In December 2014, Washington State Governor Jay Inslee introduced an ambitious climate change policy agenda for 2015, including the establishment of an all-encompassing carbon pricing program. This policy follows the signing of Executive Order 14-04 (Washington Carbon Reduction and Clean Energy Action) by Governor Inslee on April 29, 2014, which set out a plan for state climate action.
If passed by state lawmakers, the program would raise an estimated $1 billion a year through a new levy on greenhouse gas emissions. In particular, the program would cap statewide pollution rates at levels that decline over time, with polluters allowed to trade state-sold pollution allowances among themselves. It would aim to address emissions covered other similar programs operating in the US, while avoiding pitfalls of other programs, such as giveaways for certain polluters. The technical aspects of Washington’s proposed program are considered best practices and as such, they have been lauded by outside observers such as the Environmental Defense Fund.
The program has been designed to help Washington get on track toward meeting its legislated goal of reducing emissions to 1990 levels by 2020, with a further 50% reduction by 2050. A November 2014 report by the Carbon Emissions Reduction Taskforce (which was established by Governor Inslee in April 2014 to provide recommendations on the design and implementation of a carbon emissions limits and market mechanisms program for Washington) concluded that Washington is not on target to comply with the 2008 law regarding required reductions in greenhouse gas pollution. It found that the requirement of reducing yearly pollution levels back to 1990 levels in 2020 would “likely” be met if a new cap and trade policy is implemented. Further steps would be needed to meet more ambitious reductions required by 2035 and 2050.
The proposed program would cover an estimated 85% of greenhouse gas emissions produced by Washington and it is anticipated that approximately 130 companies would be required to pay a levy, generating approximately $1 billion a year in revenue. Revenue generated under the cap-and-trade proposal would help to cover shortfalls in transportation and education spending, reduce taxes and fund household energy efficiency improvements for poorer residents, as well as help meeting the general costs of running the state.
Below is an overview of the legislative proposals aimed at reducing Washington’s greenhouse gas emissions:
• Carbon Pollution Accountability Act: The proposed Carbon Pollution Accountability Act (SB 5283 / HB 1314) would create a new market-based program that limits carbon emissions and requires regulated entities to pay for their emissions. The limit will decrease gradually over time, allowing emitters time to transition to cleaner technology and more efficient operations. The program will generate about $1 billion annually which will be used for transportation, education and disadvantaged communities. The draft Carbon Pollution Accountability Act can be found here.
• Clean Transportation: The Department of Transportation has three strategies to decrease transportation emissions: cleaner cars, cleaner fuels and moving people and goods more efficiently.
• Electric Vehicles (EVs): Legislation will extend tax incentives for EVs, create an EV infrastructure bank, and require urban cities and counties to adopt EV incentive programs. Draft legislation can be found below:
o Alternative Fuel Vehicle Sales Tax Exemption (SB 5445 / HB 1925): This bill extend a sales tax exemption on the first $60,000 on the purchase of alternative fuel vehicles.
o Electric Vehicle Infrastructure Carbon Pollution Accountability ActBank (SB 5444 / HB 1572): An EV bank would give financial assistance to install publicly accessible high-speed charging stations.
o Electric Vehicle Readiness in Buildings (SB 5446 / HB 1929): This bill would require urban cities and counties to adopt high speed EV charging station incentive programs.
• Zero Emission Vehicles (ZEVs): The Department of Ecology has requested legislation to allow Washington to adopt the Zero Emission Vehicle program.
• Clean Fuel Standard: The Department of Ecology is preparing a draft rule that outlines a clean fuel standard that would help the state to transition to cleaner fuels over time.
• Sustainable Transportation Planning: To reduce carbon pollution that comes from cars, trucks and other transportation-related sources, the Department of Transportation has developed a five-part action plan.

Public hearings on the proposed Carbon Pollution Accountability Act are continuing and have attracted great interest. Stay tuned for more details.

Ontario Carbon Pricing Plan

Ontario Premier Kathleen Wynne announced on January 14, 2015 that a carbon pricing plan is currently under consideration by the provincial government. This follows the signing of a Memorandum of Understanding Concerning Concerted Climate Change Actions by Ontario and Quebec in November 2014, which includes a commitment by Ontario to explore the use of market-based mechanisms to curb emissions. To that end, Environment Minister Glen Murray is in the process of preparing a report on the various options to put a price on carbon, including the potential implementation of a carbon tax or a cap-and-trade system. It is anticipated that more details will be released about the carbon pricing plan in spring 2015.


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BC Restructures GHG Emissions Regulatory Framework in Light of LNG Projects

 
On October 20, 2014, Environment Minister Mary Polak announced the first part of a restructuring of BC’s GHG emissions regulatory framework with the release of Bill 2, also known as the Greenhouse Gas Industrial Reporting and Control Act. This piece of legislation will replace the Greenhouse Gas Reduction (Cap and Trade) Act that came into force on May 29, 2008. The restructuring will continue with the release of the relevant Regulations under the new Act once it is given Royal Assent and comes into force. These regulations will include a new GHG Reporting Regulation and a new Emission Offset Regulation. It is expected that the reporting thresholds in the new GHG Reporting Regulation and the resulting obligations thereunder will remain the same. Tim Lesiuk, Executive Director and Chief Negotiator at Climate Action Secretariat, emphasized in a technical briefing the importance and responsibility of companies assuming to be below the lowest reporting threshold of 10,000 t CO2e annually (called non-reporting entities), to also monitor and document their GHG emissions in order to mitigate the risk of regulatory non-compliance and provide proof of their status as a non-reporting entity in case of an inspection.
A new Emission Offset Regulation is expected to offer an independent offset certification process from the BC Government’s Carbon Neutral purchase program. This will be achieved through a new certification and registry system. The BC Government’s existing Carbon Neutral purchase program conducted by the Climate Investment Branch will continue, but they will source their offsets from the new certification and registry system. Existing offset purchase contracts are expected to be grandfathered into the new system.
The functional new aspect in Bill 2 is the introduction of a new carbon intensity performance requirement. This carbon intensity performance target, called Regulated Operations’ Emission Limits in the Act is an additional requirement beyond the reporting obligation that only applies to industries that are listed in the Schedule of Regulated Operations and Emission Limits in the Act.
The only two listed industries so far are coal-based electricity generation operation with a limit of 0 tonnes carbon dioxide equivalent emissions and liquefied natural gas operations with a limit of 0.16 carbon dioxide equivalent tonnes for each tonne of liquefied natural gas produced. However, additional industries may be added and the BC Government has indicated that it will be announcing climate change measures in other sectors going forward.
The emission target carbon intensity performance quantification is limited to the facility level and therefore does not include any upstream or downstream emissions outside of the facility boundary. In order to meet their obligations, regulated entities with prescribed emission limits will have several compliance mechanisms available to them. In particular, they can:
• improve energy efficiency or increase the use of clean electricity through facility design;
• acquire emissions offsets by investing in BC-based emission reduction projects at market prices; or
• contribute to a technology fund at a rate of $25 per tonne of CO2e.

Besides setting up a new technology fund, Bill 2 also requires the establishment of a registry for the purposes of the Act. This registry will be the only place where offset units and earned credits, resulting from performance below the emissions limit, are tracked. This is also the only place where transactions under the Act can be executed for compliance purposes.
If you have any questions about Bill 2 and the proposed changes to the BC emission offset regime or their potential impacts on your operations or offset project, please contact GHG Accounting Services.