The Cap and Trade Onion

APPrO Cap and Trade Blog



It is rare to see such an important government initiative with such a wide ranging impact still have so many  questions still outstanding just ten months from program start. But that is where we stand with Ontario’s cap and trade plan.


The devil is always in the details and cap and trade’s details are voluminous.  The draft regulations run into the many hundreds of pages.  I took part in two separate webinars in the week after the draft regulation was announced, one with government officials, and one with IESO.  Both were well attended by stakeholders.  Both went on for hours. Both generated more questions than answers.  Cap and trade is proving to be the proverbial onion:  every time you peel away one layer, another reveals itself.


Power producers enter the exercise knowing that the electricity sector has done more than our share, in fact more than any other major sector in Ontario, to battle climate change.  With the closure of the coal fired plants, major nuclear refurbishment, new clean energy gas plants and more renewables Ontario’s electricity system is now a minor contributor to greenhouse gas emissions.  We are dwarfed by transportation, industry, residential and institutional emitters.


But make no mistake:  cap and trade affects us too.  Perhaps profoundly.


In advance of the legislation, we argued that natural gas fired generators should be allowed to manage their own greenhouse gas allowances.  We are used to dealing with commodity risks and are good at it.  We believe it is the most efficient and logical approach.   But the government seems determined to put the onus on natural gas distributors.  It means that it will be Enbridge and Union Gas buying the allocations and putting a price on carbon, which must then be built into the regulated rates that they charge power producers.  Here is where the details are sketchy.


How are these costs to be levied on power producers? And in turn, how will they be passed along to consumers? Power producers have many and varied contracts, which date from different eras.  


The questions go on.  At a high level we understand how power imports will be treated, but what about exports? Will Ontario’s electricity be forced to become more expensive and thus less attractive to out-of-province buyers? 


The Ontario Energy Board will undoubtedly have to hold an exceptionally condensed and complex hearing in order to make decisions on the appropriate methodology and rate design for natural gas distributors.  



Regardless of the rate design issues, APPrO will continue to push vigourously for equitable treatment for all of our members. It is a fundamental principle that generators must be allowed to recover reasonably-incurred costs. We are actively engaged on these issues.


APPrO has already developed its responses to the initial stages of the process.  The government will shortly be receiving our comments on the draft regulations, and we are working with our members to give feedback to the IESO on how it will deal with cost recovery issues and we anticipate that we will be significant participants in the Ontario Energy Board’s consultations on the cap and trade regulatory framework for natural gas distribution companies. 


We are now into a tight timeline given the government’s goal of implementing its program in January 2017.  Even ministry officials have admitted that there is a huge amount of work to do over a short period of time.


APPrO will keep asking for answers, even as the questions multiply. 



David Butters
President & CEO
The Association of Power Producers of Ontario (APPrO)










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