Promoting Green Power in Canada - Centre for Human Settlements

Promoting Green Power in Canada Pollution Probe4.2.4 Trading as Additional Revenue forRenewable Power ProducersThe total possible trading revenue shown inTable 4.4 (C$3.50/MWh) is only a smallpercentage of the generation cost forrenewable power, which is at least $50-60(see chapter 2.2.6). This means that tradingcan only reduce the generation cost by about7%. Some caution is warranted with respectto CO 2credits: while a price of $2 per ton ofCO 2is a conservative number, the actualrevenue created depends on whether or not abuyer can be found. Since there is, as yet, noregulatory framework, CO 2emissionreductions may have to be establishedagainst a changing background electricity mix.On the other hand, CO 2offset prices areexpected to rise over the coming years and mayattain values of up to (US) $15, a ton even inthe absence of an obligatory internationaltrading framework, which may make up forsome of the uncertainties linked to CO 2emissions.It is also striking that the revenues from NOxallowances may well be the smallest sourceof income if other pollutants are regulated— mainly because of the seasonal nature ofsome of the NOx markets. These numbersare very similar to current market prices ofthe green attributes of renewable electricity,which range from (US) $1.50 to $4.00 perMWh (see chapter 5).4.2.5 Ontario’s Emission AllowanceSet-AsidesOntario’s emission trading system went intoeffect for electricity generators on December31, 2001. Based on Regulation 397/01 andthe Ontario Emission Trading Code, emissioncaps for both NOx and SO 2have been in placesince January 2002. One thousand tons(2.8% of the total) of NOx emissionallowances and 4,000 tons (2.5% of the total)of SO 2allowances are set aside to supportrenewable power generation and energyconservation measures. The Regulationallows for a maximum of 33% (NOx) or 10%(SO 2) of emissions to be covered by extraallowances from emission reduction credits(including on-site measures, such as fuelswitching or upgraded burners). The allowancesystem is managed through the OntarioEmission Trading Registry [APCC 2002].The Emission Trading Code specifies thatallowances from renewable power generatorswill be treated in the same way as emissionreductions. Applicants have to submit threedocuments before they can be allocatedallowances: a Protocol, an Emission ReductionReport, and a Verification Report. Emittingtechnologies, such as electricity generationfrom biomass and landfill gas, are excludedfrom the scheme [OETC 2001, pp. 13f.]. Theconstruction of eligible renewable powerprojects must have started after January 24,2000, be located in Ontario, and be based onwind, solar PV, run-of-river hydro, or hydrogeneration from existing dams. A project iseligible for allowances until seven years aftercommissioning and allowances can only beclaimed after one full year of operation [ibid.,p. 27]. Allowance allocations are calculatedbased on seasonal emission intensities, whichare different for day and night, and are relatedto a MWh of electricity generation. Both NOxand SO 2allowances are traded throughoutthe year. Annual average emission factors are:NOx: 1.17 kg/MWh and SO 2: 3.79 kg/MWh.As the Ontario trading regime contains aclause admitting the introduction of U.S.allowances into Canada, US prices could havea strong influence on allowance prices inOntario, and similar values as in the US canbe assumed for Canadian allowances [OPG2002b]. While it may not be necessary evenfor smaller renewable electricity generatorsto use brokerage services at this point in time(the only buyer of allowances is currentlyOntario Power Generation), allowances aresubject to income tax (40%) requirements(unless for utilities that are tax exempt Crown77