Emissions Trading Overview

Transcription

1 Emissions Trading Overview November 2002 Sunil Kumar MacViro Consultants Inc. ph: Items for Discussion What is Emissions Trading Ontario NOx Trading Greenhouse Gases Trading 1

2 What Commodities are Traded? NOx, SOx (Acid gases) Regional CO2, N20, CH4, others (Greenhouse gases) Global What is it? Market mechanism which supports the reduction of pollutant emissions While trading does not, in itself, reduce emissions, it increases an industry s flexibility to make reductions that achieve same overall societal environmental goals. 2

3 Why Trading? Allows society to achieve environmental benefits at a lower overall cost Organization creates credits when its emissions are below its requirements or obligations ( overinvest in technology) Buy credits when costs to reduce emissions at own facility are higher or capital is limited Example Company A Initial emission: 70 t/yr Regulated limit: 50 t/yr Reduced to 20 t/yr Unit cost = $2,000/t Bank 20 t/yr Sell 10 t/yr credits for $3,500/t $20,000 cost Company B Initial emission: 70 t/yr Regulated limit: 50 t/yr Reduce in-house to 60 t/yr Unit cost = $8,000/t Cost to achieve additional 10 t/yr = $80,000 Buy 10 t/yr credits for $35,000 Net Earning $15,000 Net Savings $45,000 3

4 Emission Trading - Example E M I S S I O N S Regulated Limit of 50 t Company A Emissions are cut to 20 t, leaving them with an excess of 30 t that can be banked for future use or sold to others Company B Emissions are cut to 60 t, leaving them 10 kt over target. They buy 10 t from Company A to achieve compliance Trading Market Models 1) Cap and Trade Closed System 2) Baseline & Credit Open System 3) Hybrid combination of above two 4

5 General Criteria for Credits Real -- actual emission reduction resulting from specific actions Quantifiable -- able to be calculated in a reliable way Surplus -- beyond what s required by regulation or commitment Verifiable -- third party audit Unique -- created and recorded once from specific measure at specific time Steps in Selling Credits Initial Assessment Protocol & Creation Report Documents Verification Certification (if regulated) Negotiate Commercial Terms Transaction 5

6 Ontario NOx/ SOx Trading Overview Ontario Regulation came into effect January 2002 Electronic registry on website 3 Key Documents: Emission Trading Regulation Emission Trading Code Technical Description In principle hybrid system Ontario Trading System Elements Emission Allowances: distributed to capped emitters (currently power generation) Set-Asides: For new conservation and renewable energy projects which displace electricity purchased from coal and oil-fired plants Emission Reduction Credits: created by uncapped emitters 6

7 Ontario Trading System Sample Projects Emission Reductions: Nanticoke, Lambton TGS low NOx burners Lennox TGS fuel switching Ameren Sioux Power Plant (Missouri) low NOx burners EMJ Data Systems (Guelph) energy conservation Set Aside Reductions: Port Albert Wind Farm Ontario Trading System Caps In 2002, applies to coal and oil fired electrical generation facilities of Lakeview, Nanticoke, Lambton, Atikokan, Thunder Bay, Lennox TGS - ( OPG ) In 2004, expanded to cover large generators Caps decline with time 7

8 Ontario Trading System NOx Caps Year Overall Cap Cap Breakdown Set OPG: 35 Others:0 Aside: Set OPG: 25 Others:10 Aside: Set Pollution Non-PEMA: Aside:1 Emission 2.4 Management Area: 24.6 In kilotonnes per year of NO Some Prices NOx (US market): U$ per ton GHG (present): U$ 1-2 per ton GHG (future): up to U$ 10 per ton or higher 8

9 Climate Change & GHG Credits Kyoto Protocol signed in 1997 with intent to reduce global emissions of greenhouse gases Canada s target: reduce emissions 6% by compared to 1990 baseline level Why Buy GHG Credits Now? Hedge Risk (current cost below future estimates) Add Feedback to the Political Process - the challenge is in the details!!!! Public Relations Financial transactions have taken place!! 9

10 Kyoto Protocol - Canada Draft Plan released on October 24 Govt. of Canada has expressed its intent to ratify Kyoto this year after National Consultation and agreement with Provinces Concerns expressed by several parties Full plan available at: Elements of Draft Climate Change Plan - Industrial Sectors specifically mentioned: iron and steel, oil and gas, thermal electricity generation, mining, pulp and paper, chemical production, smelting and refining, others. Allocation of free permits to meet approximately 85% of requirements Balance to be achieved through emission reductions, permit purchases, offsets Allocation basis under discussion 10

11 PERT/ Clean Air Canada Industry led initiative - started in Ontario in 1996 Facilitated trades in NOx, SOx, GHG Over 70 projects reviewed Examples: OPG - low NOx burners, energy efficiency Energy Plus woodwaste steam generation Petro Source (Texas) - CO2 capture in wells Detroit Edison - power plant NOx reduction Newalta - crude oil recovery Stelco - energy efficiency Dofasco - reheat furnace upgrades Transalta - cogeneration Chicago Climate Exchange Industry led, voluntary private-sector program to trade greenhouse gases At start-up stage Members include: BP, DTE, OPG, Suncor Energy, DuPont, Ford, Intenational Paper 11

12 Pilot Emission Removals, Reductions and Learnings Initiative (PERRL) Environment Canada Initiative Federal Govt. plans to buy the rights to verified GHG emission reductions from eligible projects Current focus: landfill gas capture and combustion, carbon dioxide capture and storage Budget: $ 15 million to end of 2007 Reverse auction process Other Initiatives - GHG Recent OPG Request for Proposal for Greenhouse Gas Emission Reductions BP: In-house trading program for several years UK, Other European countries: Formal government systems in place 12

13 Some Useful Websites Ontario Ministry of the Environment: Chicago Climate Exchange: Clean Air Canada: PERRL: Compliance Strategy - Approach Establish baseline emissions (current or 1990) Assess possible future limits Estimate difference - gap or surplus If gap - establish internal abatement costs Establish strategy: in-house measures, buy credits, sell credits, combination 13

14 MacViro Consultants Inc Engineering & Environmental Consulting Firm Office: Markham, Ontario Areas of Service: Environmental Management Air Emissions Energy Management Climate Change, Emission Reductions & Trading Studies, Engineering, Project & Construction Management Questions? 14