California-Ontario-Québec Harmonized Cap-and-Trade Program – Compliance Digest

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This past fall, the federal government announced its pan-Canadian approach to fighting climate change by implementing a price on carbon pollution.

Essentially, this mandates that each province and territory will have until to either institute a cap-and-trade system, or set a carbon tax.

In a cap-and-trade system, the government sets a limit on the level of allowable emissions quebec cap and trade natural gas industry. It then issues permits to companies, specifying exactly how much carbon that company can burn. If a company wants binary fair value burn more than its share of carbon it must buy — through an auction — extra permits from other companies that have burned less.

Alternately, with a carbon tax, the government sets a price per tonne on carbon, and then translates it into a tax on electricity, natural gas or oil. British Columbia implemented this system inand Alberta began in January Highlights of the announcement included:. Unfortunately, cap-and-trade is expected to increase certain costs for Quebec cap and trade natural gas.

This includes increased costs for:. On March 22,Ontario held its first-ever cap-and-trade auction. The auction summary results report can be viewed here.

While both carbon pricing systems have similar objectives — generating revenue, imposing a compliance obligation, and encouraging a shift to a lower carbon economy and reduction of greenhouse gas emissions — not everyone in the province is in favour of cap-and-trade. Background Cap-and-Trade In a cap-and-trade system, the government sets a limit on the level of allowable emissions from industry. Carbon Tax Alternately, with a carbon tax, the government sets a price per tonne on carbon, and then translates it into a tax on electricity, natural gas or oil.

Highlights of the announcement included: This includes increased costs for: Homeowners who heat with natural gas or furnace oil. They will be required by quebec cap and trade natural gas to participate in the program, and will be required to buy their own emission allowances; and M otoristswho can be expected to pay 3 cents a litre more for gasoline in Looking Ahead While both carbon pricing systems have similar objectives — generating revenue, imposing a compliance obligation, and encouraging a shift to a lower carbon economy and reduction of greenhouse gas emissions — not everyone in the province is in favour of cap-and-trade.

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Skip to content Ontario. In April , the Province of Ontario announced its decision to establish a cap and trade program to reduce greenhouse gas GHG emissions. Importers of electricity into Ontario will be required to achieve compliance for the electricity they import under the proposed program.

Requiring imports to comply achieves two objectives, it:. Ontario proposes to establish default emission factors annually for imported electricity from select jurisdictions in Canada and the US. Navigant was retained by the Ministry of Energy to develop and recommend a methodology to establish the default emission factors based on the emissions intensity of marginal generation resources in the following jurisdictions:.

Navigant was also retained to develop and recommend a methodology to establish a generic default emission factor for imports originating outside of the above mentioned jurisdictions. This report contains four sections and five appendices. The third section, discusses the sensitivity analysis that Navigant conducted on three aspects of the methodology. The fourth and final section presents the results of the methodology and the proposed default emission factors.

Through the use of a marginal default emission factors, Ontario aims to minimize emission leakage and to create an efficient price signal for imports into Ontario relative to domestic production. The general concept of a marginal resource is well-defined — the next available unit of production required to meet the next unit of demand. However, in the context of an electricity system managed through a security-constrained least cost dispatch, there are different ways to interpret, and determine, the marginal resource s.

Navigant also recognizes that there are different approaches that Ontario could take to estimate the emissions associated with imported electricity into Ontario.

Once the marginal resource s are identified, a single emission intensity is then calculated for each hour and averaged across time periods to determine the default emission factors. This methodology is described in detail below. Each step is described in further detail in the sections that follow. Navigant updates its reference case assumptions semi-annually to account for changes in market dynamics. PROMOD is a detailed hourly chronological market model that simulates the dispatch and operation of wholesale electricity markets.

Navigant runs it in the full nodal model with full transmission representation, as opposed to a zonal model that aggregates transmission constraints. The nodal model establishes individual locational marginal prices for each generation node and a load-weighted locational marginal price for each zone.

To establish a single price for each jurisdiction, Navigant calculated the load-weighted average of the individual zonal prices. Navigant calculated the firing cost per megawatt-hour for each generation unit using the following formula. The fuel costs vary by month, meaning that each generating unit has twelve firing costs over the year. An emissions cost was added for units that are subject to emission costs in their region.

The emission cost was calculated using the following formula:. The assumed carbon content of coal, oil and gas are , and short tons per MMBtu respectively.

Navigant grouped generation units within each jurisdiction into deciles by cumulative available capacity, such that each decile contains roughly the same amount of available generation. The first decile comprised the least expensive units and the tenth decile comprised the most expensive units. Navigant then calculated a single firing cost and emission intensity for each decile based on the capacity-weighted average firing cost and emission intensity of the generation units within each decile.

Navigant mapped an emission intensity to each hour of the year based on the emission intensity of the decile with the firing cost closest to the hourly price. Navigant calculated two annual default emission factors for each jurisdiction by averaging the hourly emission intensities across the peak and off-peak periods.

Navigant used a non-standard definition of peak, 7: The choice of a single set of peak and off-peak factors, rather than multiple factors for each month or season, and the non-standard peak definition are discussed in more detail in Section 3. The methodology outlined above was applied to all of the US jurisdictions.

Manitoba, however, has a significantly different electricity system. Manitoba Installed Generation Capacity. The renewable generation facilities in Manitoba have a marginal emission intensity of zero. Hence Navigant recommends that the default emission factors for Manitoba be set at zero.

In addition to the default emission factors for specifically named jurisdictions, Navigant was retained to develop a methodology and propose default emission factors for imports emanating from other unspecified regions. However, a very small number of imports in the past have originated in other parts of the Eastern Interconnection. Hence, to establish a generic factor for imports from the unspecified regions, Navigant compared the generation resource mix in the remainder of the Eastern Interconnection e.

Navigant found that the resource mix across the unspecified regions is similar to that of PJM. Hence, Navigant expects that if the marginal analysis was conducted for the reminder of the Eastern Interconnection, the results would be similar to PJM.

As a result, Navigant recommends using the PJM default factors as the default factors for imports from any other jurisdiction. Through the course of the analysis, Navigant identified a number of methodological assumptions that could have a material impact on the results. This section discusses the results of a sensitivity analysis around three such assumptions:.

The results presented in Section 4 are based on a single peak and off peak definition across the entire year. In other words, they do not vary by month or season.

In order to understand the impact and validity of this assumption, Navigant analysed the pattern of average daily emissions by month and grouped them by season.

The seasonal definitions are summarised in Table 1. Navigant plotted the average daily emission factors for each jurisdiction by month, grouped by season, in order to identify similar patterns. Ultimately, Navigant concluded that, while some seasonal patterns exist, they were not strong enough within jurisdictions or consistent enough across jurisdictions to warrant seasonal emission factors.

The results presented in the Section 4 are based on a non-standard definition of the peak period. The decision to use a non-standard definition was based on an analysis of hourly emission factors within each jurisdiction.

Navigant analysed the pattern of hourly emission intensity for an average week in each jurisdiction. The graphs below show the profile of hourly emission intensities starting on a Monday at As evident from the charts below, the emission intensity during the daytime on weekends more closely resembles the emission intensity during the daytime on weekdays.

As a result, Navigant recommended using the non-standard definition which is based on a 16 hour-per day peak period seven days a week, rather than the standard five days a week definition typically used by the Independent System Operators.

Navigant believes that this definition results in a more uniform emission factor within each period. Another methodological assumption that Navigant tested was the exclusion of highly congested zones from the calculation of the default emission factors.

From a practical standpoint, there are a number of zones within the specified jurisdictions that are transmission constrained and as a result are generally not the source of imports into Ontario, e. As such, an argument could be made that these zones should be excluded from the analysis.

In both cases Navigant did not find materially differing results. The specific zones selected for exclusion could be a matter of debate. Hence, based on the limited impact observed through the sensitivity analysis, Navigant recommends including all zones and generation units within a jurisdiction in the calculation of the emission factor for the jurisdiction.

Hence, it is important to understand how the proposed emission factors for the Ontario program align with the emission factors used in California and Quebec. For the most part, California uses specific emission factors tied to the specific generating resource from which the electricity is being imported.

For the rare unspecified imports, California applies a default emission factor of 0. Similarly, where possible, Quebec applies an emission factor tied to the specific generating resource from with the electricity is being imported.

For imports into Quebec that are sourced from an identifiable facility for which the information needed to calculate specific greenhouse gas emissions is not available, and for imports from unidentifiable facilities, Quebec relies on the following calculation and default regional factors.

What does my company need to do to comply with the cap and trade regulation? In MISO and PJM, the marginal resources during the off-peak period are almost entirely coal, whereas during the peak periods the marginal resources are a mix of natural gas and coal.

For these two regions, this results in a higher emission factor during the off peak than during the peak. Whereas, the during the peak period the marginal resources are a mix of natural gas plants of varying efficiencies and some oil-fired generation units.

For Manitoba, a factor of zero is appropriate as discussed in Section 2. As outlined in Section 2. The emission factors presented in Table 4 are rounded for simplicity. Navigant employs a variety of commercial and proprietary energy market modeling tools to project generating capacity retirements and additions, generating unit dispatch, fuel consumption, gas pipeline flows, and commodity prices in organized e.

A schematic of these tools is shown below, followed by a brief description of each tool. PROMOD IV is a detailed hourly chronological market model that simulates the dispatch and operation of the wholesale electricity market. This model replicates the least-cost optimization decision criteria used by system operators and utilities in the market while observing generating operational limitations and transmission constraints.

PROMOD can be run as a zonal or nodal model; although Navigant normally runs it in the full nodal model with full transmission representation. Both programs include power flow, optimal power flow, balanced and unbalanced fault analysis, dynamic simulations, extended term dynamic simulations, open access and pricing, transfer limit analysis, and network reduction. GPCM is a commercial linear-programming model of the North American gas marketplace and infrastructure.

Navigant applies its own analysis to provide macroeconomic outlook and natural gas supply and demand data for the model, including infrastructure additions and configurations, and its own supply and demand elasticity assumptions.

Adjustments are made to the model to reflect accurate infrastructure operating capability as well as the rapidly changing market environment regarding economic growth rates, energy prices, gas production growth levels, sectoral demand and natural gas pipeline, storage and LNG terminal system additions and expansions. To capture current expectations for the gas market, this long term monthly forecast is combined with near term NYMEX average forward prices for the first two years of the forecast.

Navigant currently obtains the delivered coal price forecast from Energy Ventures Analysis, Inc. It simultaneously performs least-cost optimization of the electric power system expansion and dispatch in multi-decade time horizons. Optionally POM can perform multivariate optimization, which considers other value propositions than just cost minimization, such as sustainability, technological innovation, or spurring economic development. This makes it especially suitable for modeling future renewable generation expansion.

The tool reviews the historical emissions of all existing coal units, the existing emissions equipment, and unit allocations for NOx and SOx emissions in order to determine which units are economic to retrofit with pollution control technology and which should be retired. The retirement or retrofit decision is based on the opportunity cost of replacing the coal units with natural gas generation. The Coal Retirement Forecast model summarizes the coal retirements and retrofits by state, ISO, and NERC region, and reports the retirements and retrofits as announced or economically driven.

The tool will also estimate how far in or out of the money each unit is to retrofit and the emissions equipment required to be compliant with EPA regulations. PJM Supply Stack. Government of Ontario home page Skip to content Ontario. Share Share this page on Twitter Share this page on Facebook.