Promoting Green Power in Canada - Centre for Human Settlements

Promoting Green Power in Canada Pollution ProbeYear 1 Year 2 Year 3New Sources:5%RE/EE5%New Sources:5%RE/EE5%New Sources:5%RE/EE5%Current NOxEmissions:100%Old Sources:90%BankedAllowances (ifany)Old Sources:90%BankedAllowances (ifany)Old Sources:90%Year 1: 90% of current NOx emissions are allocated to existing sources, 5% are set aside for new emittingplants, 5% are set aside for renewable energy/energy efficiency.Year 2: The same amounts are set aside, unused allowances may be banked.Year 3: Like year 2, “new” sources of year 1 have become “old” sources.NOTE: The total amount of allowances can decrease if some of the allowances are retired, or if loweremission performance standards come into force. After a few years, the government may decide toreduce the overall amount of allowances granted.Figure 4.3 — Allocation of NOx Allowances to Old and New Sources and RenewableEnergy/Energy Efficiency ProjectsFigure 4.3 describes the allocation processfor NOx emission allowances over the firstthree years of a generic set-aside program.First, the overall emissions are assessed (the“budget”) and allowances allocatedaccording to each power and steamgeneration “budget unit.” Under cap-andtradeprovisions, these budget units are notallowed to emit more NOx than theequivalent of the complete allowance pool.In order to enable electricity production toexpand according to demand, part of theallowances pool (e.g., 5% in Massachusetts)is being set aside as a New Unit Set-Asideand is allocated to newly built powergeneration units. Along the same lines, theUS Environmental Protection Agency (EPA)introduced a new kind of set-asides, oftencalled public benefit set-asides, to accountfor the air pollution emission reductionsfrom energy efficiency and renewable power(EE/RE) in the framework of existing NOxtrading schemes. The model proposed by theEPA is to set aside another 5% of allowancesin each of the first three years and 2% eachyear during subsequent years for the EE/REset-aside pool. Each year, renewable powerand energy efficiency projects can apply tobe allocated these “set-aside” allowances[EPA 2000]. States have so far implementedsmaller set-aside pools of only 3–5%, whichtends to be under-subscribed according tocurrent experience [EPA 2002a]. If either ofthe two set-aside allowance pools is not usedup in a given year, states generally allow theshifting of surplus allowances from one poolto the other. Other options are banking themfor the next year, or redistributing them toemitting units. Indefinite banking ofallowances is allowed, but the value ofallowances can be reduced by the programadministrator if more than 10% of theoverall budget is banked.Table 4.2 provides an overview of some basicdesign features the EPA recommends forsetting up an EE/RE set-aside. So far, fivestates have developed plans based on theEPA’s EE/RE Set-Aside State ImplementationCall, three of which have been in operationsince 1999 (see Appendix F).68