On July 1st, Ontario’s Cap and Trade Regulation went into force. This can have an enormous impact on businesses’ energy-based operating costs. Now is the time to determine what this means for your business.
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Ontario Cap & Trade - Time is Running Out for Small & Medium Business to Save
1. ONTARIO CAP & TRADE
Time is Running Out for Small & Medium Business to Save
An ICF Canada Quick Take
2. CAP AND TRADE PROGRAM
REQUIRES SWIFT ACTION
2
Ontario’s Cap and Trade regulation went into force July 1st.
The program will officially launch on January 1st, 2017.
This can have an enormous impact on the energy-based operating costs of your business.
For example, facilities eligible to voluntarily participate in the cap and trade program could save up to $450,000
per year.
3. 3
Assess how your company will be affected by the cap and trade program, and present your
options
Provide informational presentations and/or workshops to help you navigate the breadth of this
new program
Work with you to support decisions regarding how to participate in program
How ICF can help you
4. What is the Cap and Trade Program?
The cap and trade program is a central pillar of Ontario’s broader Climate Strategy, in combination
with the Climate Change Action Plan.
The program sets a province-wide limit on greenhouse gas (GHG) emissions from covered
sectors, establishing a market for allowances. These sectors include large emitters (facilities
emitting >25,000 tCO2e), electricity generators, and heating and transportation fuel distributors.
An amount of allowances equal to the annually declining cap will be created each year to be either
sold at auction or allocated free of charge.
4
tCO2e = tonnes of carbon dioxide equivalent (a measure of greenhouse gases)
5. What is the Cap and Trade Program?
5
Historical
Emissions
Future
Emissions
Historical
Emissions
Future
Emissions
Future
Emission
Target
Business as Usual trajectory
6. What is the Cap and Trade Program?
The cap and trade program will impose “carbon” costs on all fossil fuel-based energy consumption
and some non-energy-related industrial process emissions across the province.
These costs will be felt differently by different entities depending on size and sector. Many large
emitters will receive a significant portion of the allowances they need free of charge.
Free allocation of allowances is a program design feature intended to protect trade-exposed
industry and help businesses transition to the program.
6Next >> Why should you care?
7. Why should you care?
Large emitters participate directly in the program.
Fuel distributors are responsible for emissions from all consumers and end-users who do not
directly participate in the program, but will not receive any free allocation, and are expected to
pass on costs incurred as a result of the program to their customers. Therefore, entities not
directly covered by the program (i.e. smaller emitters) will pay the full carbon cost through
increased fuel prices.
7
Expected price increases on fuels in 2017:
3.3 cents/m3 or 0.9 $/GJ natural gas
5 cents/litre diesel
8. Why should you care?
There is an alternate option for mid-sized facilities emitting between 10,000 and 25,000
tCO2e/year (approximately equivalent to consuming 5 million to 12.5 million m3 of natural gas).
Opt-in to the cap and trade program to become a Voluntary Participant.
Voluntary Participants are eligible to receive free allowances similar to large emitters. This could
represent significant cost savings for many facilities ($150,000 to $450,000 per year) – but only if
fast-approaching reporting, application and verification deadlines are met.
8
Free Allowance Application Deadline: September 1, 2016
Next >> Program Details
9. Details of the Program
The cap and trade program will cover approximately 80% of total provincial emissions. The greenhouse
gases covered under the cap and trade program are:
• Carbon dioxide (CO2)
• Methane (CH4)
• Nitrous oxide (N2O)
• Four groups of fluorinated compounds:
o Hydrofluorocarbons (HFCs)
o Perfluorocarbons (PFCs)
o Sulfur hexafluoride (SF6)
o Nitrogen trifluoride (NF3)
Facilities with total annual GHG emissions of 25,000 tCO2e or more are Mandatory Participants in the
program. Facilities with emissions above 10,000 tCO2e but below 25,000 tCO2e are able to opt-in as
Voluntary Participants. Mandatory and Voluntary Participants will be required to submit allowances equal
to their emissions at the end of each compliance period.
9Next >> Quick Facts
10. Quick Facts
10
Compliance Periods:
1. 4-year period beginning 2017 through 2020
2. 3-year periods starting in 2021
Coverage:
Mandatory: Facilities with annual emissions of 25,000 tCO2e or more
Voluntary: Opt-in for facilities with annual emissions of 10,000 tCO2e or more, yet below 25,000
tCO2e
Fuel distributors are covered on behalf of their customers’ emissions, and are expected to pass
down the carbon cost on fuel bills
Allowance Distribution: Quarterly auctions and transitional assistance to covered participants
Trading: Ontario economy-wide coverage in 2017, with plan to link with California and Quebec under
WCI starting in 2018
Next >> Allowance Distribution
11. Allowance Distribution
11
The cap and trade program distributes allowances through two major mechanisms:
1. Free allocation: Eligible Mandatory and Voluntary Participants can apply to
receive free allowances from the government
2. Auction: Allowances will be sold by the government in quarterly auctions
Participants may also trade allowances amongst one another in a secondary market.
12. Allowance Distribution
12
Allowance
Auctions
Allowances
$/Tonne Price
Natural Gas
Distributors, Fuel
Suppliers,
Electricity
Importers
Free
Allocation
Energy
Allowances
Large Emitters
>25,000 tCO2e
Allowances
Higher Energy Price
Opt-In
>10,000 tCO2e
The amount of allowances allocated freely will be determined for each eligible facility individually. The formulae to
calculate the allocation amount are based on a number of metrics including sector-wide benchmark emissions
intensities, production data, facility-specific energy use data, facility-specific historic emissions baselines, and current
facility emissions. There are five main allocation methods and facilities may be eligible for multiple methods. It is crucial
for facilities to understand the data requirements and meet the application deadline.
Next >> Applying for Allowances
End – User:
- Small & Medium Industry
- Commercial & Institutional
Buildings
- Households
13. Applying for Allowances
13
Mandatory participants are required to apply for free allocation of allowances by September 1,
2016.
Positive (or qualified positive) verification statements for 2015 emissions reports – the basis for the
calculation of 2017 free allowance allocation – must also be submitted by September 1st.
14. Applying for Allowances
14
Facilities must apply to register as Voluntary Participants – forms will be available early July.
Voluntary Participants will also be subject to the September 1st deadline to apply for free
allowance allocation.
The MOECC has indicated, however, that positive verification statements for 2015 emissions reports
may be submitted at a later date. The MOECC has urged potential opt-in facilities to prepare the
verification statements as soon as possible since applications to register and applications for free
allowances cannot be approved without the verified 2015 emissions report.
Next >> Registration
15. Registration
15
For all participants…
Registration in the Compliance Instrument Tracking System Service (CITSS) is a prerequisite for market
participation. The two-step registration process includes online registration, notarized paper forms and
two levels of MOECC verification that is expected to take several weeks to complete. Disclosures of
corporate associations and ownership have to be provided to MOECC to monitor the allowance holding
limits. The MOECC will be holding training webinars for CITSS registration in July and August to facilitate
a smooth registration process for participants.
Note that the application to register as a Voluntary Participant must be approved before CITSS
registration can be started.
Next >> Timing
16. Timing
16
CITSS registration deadline for all participants is November 30, 2016.
Allowances allocated by MOECC will not be transferred if the account registration processes in CITSS
have not been completed by the transfer date (February 1, 2017).
Voluntary Participants cannot begin the CITSS registration process until registration as a Voluntary
Participant has been approved.
Next >> CHP Considerations
17. Combined Heat and Power Considerations
17
Treatment of combined heat and power (CHP) is highly facility-specific and depends on sector and
ownership arrangements.
In rare cases, CHP could save on carbon costs, but typically will result in higher costs (minimal to
significant).
Large institutions are eligible to receive free allowances for all on-site emissions 2017-2020 – this
includes CHP if it is on-site and owned/operated by the institution. If not, other allocation methods may
apply.
18. 18
If you already have CHP: Make sure you fully understand how the allocation formulae apply to you and
get data ready for the application deadline.
Note that there are some allocation changes under consideration which may impact facilities with third-
party owned/operated CHP, and institutions.
Combined Heat and Power Considerations
19. 19
If you are considering CHP: Evaluate whether different design choices can help minimize compliance
costs. Include potential cap and trade costs in your business case and risk assessments.
Combined Heat and Power Considerations
Next >> Managing Costs
20. Managing Costs
20
Looking ahead – managing long-term compliance costs
Successful participation in Ontario’s cap and trade program requires not only swift administrative action
but also the development of a long-term strategy to minimize compliance costs. Facilities will need to
consider a multitude of factors in developing their compliance strategy:
• Minimizing compliance obligation through emissions reductions and offsets
• Optimizing bid strategies at quarterly auctions
• Purchasing allowances on secondary WCI markets
• Using banking provisions to take advantage of arbitrage opportunities in the carbon market
Next >> Are You Ready?
21. Are you ready?
21
The countdown is on.
There are less than SIX months until Ontario’s cap and trade program imposes a cost on carbon, and
less than TWO months for eligible facilities to apply for free allocation of allowances. Now is the time to
determine what this means for your business.
Next >> What to do next
22. What you need to do
22
Initial Steps to be completed by early to mid-August
• Quantify 2015 GHG emissions based on Ontario’s GHG Reporting Regulation
• Estimate future annual emissions based on GHG Reporting Regulation and any foreseeable
business changes, e.g. facility expansion, addition of CHP unit, etc.
• Quantify amount of free allocation expected based on free allocation methodologies
prescribed by the MOECC
• Conduct risk assessment to determine whether to opt-in to cap and trade program or not
(also considering administrative costs/burden of doing so)
• Consider participating in MOECC informational webinars scheduled for July and August
related to free allowance application and CITSS training
23. What you need to do
23
Steps if Decision to Opt-in is made:
• Have 2015 GHG emissions report verified by an accredited Verification Body (as soon as
possible)
IMPORTANT: a verified emissions report is a prerequisite to receiving approval on your Voluntary
Participant registration AND free allowance allocation applications
• Complete registration to become a Voluntary Participant
• Complete application for free allowance allocation (application due September 1)
• Complete CITSS registration – a two part process (application due November 30)
Next >> How can ICF help?
24. How can ICF assist you?
24
Assess how your company will be affected by the cap and trade program, and present your
options
Develop a risk assessment customized to your business needs to identify key opportunities
and challenges related to the decision to opt-in to the cap and trade program or not
Offer informational presentations and/or workshops (e.g. Cap and Trade 101,
understanding free allocation methodologies, etc.)
Develop context/content to support application for free allocation based on the methods
prescribed by the MOECC
Quantify your emissions in accordance with Ontario’s GHG Reporting Regulation
Support your consultations with the MOECC
In the longer term
Identify emissions reduction opportunities including energy efficiency and upcoming
incentive programs
Support development of allowance acquisition strategies
25. ICF
25
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driven by markets, technology, or policy. Since 1969, we have combined a passion for our work with
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In Canada, ICF focuses on critical topics including energy, the environment and climate change. ICF
offers a robust portfolio of services across all of Canada’s energy and environmental marketplaces.
With more than 30 years of experience in Canada in support of businesses and government, our
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