carbon capture and storage (ccs) in a north american “cap...

Carbon Capture and Storage (CCS) in a North American “Cap-and-Trade” Context from an

Ontario Perspective

Andrew E Hewitt, B. Eng. Sc., MBAIntegration Branch

Regional Operations Division

2nd Conference of the Chair on CO2 geological sequestrationQuebec City, Quebec

April 22, 2010


2

Disclaimer

The views expressed in this presentation are the personal views of the presenter and do not necessarily represent the views of the Ministry of Natural Resources of other Ministry staff


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OverviewQ1. What is to be “capped” or “traded” and which level of government has

jurisdiction?

Q2. Where are the exiting or evolving “Cap-and-Trade” regimes?

Q3. How likely will Ontario “emitters” be subject to a “Cap-and-Trade” regime?

Q4. Which “emitters” are likely to be impacted by a “Cap-and-Trade” regime?

Q5. What technological solution available to large “emitters” to continue to prosper and grow in a “Cape-and-Trade” environment?

Q6. What are elements of a potential “Cap-and-Trade” regime?

Q7. What is being done in adjacent jurisdictions ?


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Q1. What is to be “capped” or “traded” and which level of government has jurisdiction?

Answer to What is to be capped: The release into the atmosphere of Carbon Dioxide Equivalent (CO2e)

CO2e = (Volume of the following gas measured in Million Metric Tonne) X (its global warming potential (GWP) over a period of one century)

Gas GWP Anthropogenic sources

Carbon dioxide 1 Combustion of fossil fuels, deforestation and industrial processes

Methane 21 Cultivation of livestock, natural gas delivery systems, landfills and coal mining.

Nitrous Oxide 310 Agricultural practices, production and application of fertilizers, and the burning of fossil fuels.

HydrofluorocarbonsCHCLF2

1,350 Liquid coolants, such as air conditioning and refrigerators

HydrofluorocarbonsCCL2F2

6,200–7,100

Liquid coolants and foams.

Perfluorocarbons 6,500–9,200

Anthropogenic sources: Aluminium production and semi-conductor industry applications

Sulphur Hexafluoride

23,900 Dielectric fluid used in electrical equipment, such as transformers


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Q1. What is to be “capped” or “traded” and which level of government has jurisdiction? (cont’d)

• Surplus reduction {aka “credits” form capped sectors} = (emission allowed by regulation) –(actual emission)

• “Offsets” form non-capped sectors and non-mandated sectors, or “sinks” = reduction of emission due to a specific project

• Market size: same jurisdiction, (potential for being superseded by sub-national, national or international regimes).

Answer to what is to be traded: two commodities, certified credits and offsets


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Q1. What is to be “capped” or “traded” and which level of government has jurisdiction? (cont’d)

Answer to Which level of government has jurisdiction to mandate such caps: Both federal and provincial/state governments.

• “Capping” emissions and “Trading” of “environmental instruments” are shared jurisdictions between the federal government (Canada/USA) and each provincial/state government within its own province/state.

• The Federal government has sole jurisdiction over international and inter-provincial/state trade. However, provincial or state legislation can exist in the absence of federal ones. (precedents: Security exchanges ..etc)

• Provincial/state legislation can exist in the absence of federal ones.

• To avoid duplication, provincial legislations must at least meet the standards set in the federal ones to become a “substitute” accepted by the federal government

• “Climate Change Penalties” under EPA are “Criminal Code” (sole jurisdictions of the federal government in Canada). Non-Compliance risk not covered by “directors’ and officers' insurance”.


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Q2. Where are the exiting or evolving “Cap-and-Trade” regimes?

Existed (Voluntary):• United Kingdom Emissions Trading System (UK ETS)

Existing (Mandatory):• European Union Emissions Trading Scheme (EU ETS)• Regional Greenhouse Gas Initiative (RGGI).

Existing (Voluntary):• Australian Emissions Trading Scheme (AUS ETS)• Japan Voluntary Emission Trading Scheme (JVETS)

Evolving:• Sub-national:

– Mid-western Greenhouse Gas Reduction Accord (MGA)– Western Climate Initiative (WCI)– Ontario– Quebec

• U.S. national “Cap-and-trade” scheme• Canada national “Cap-and-trade” scheme


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United Kingdom Emissions Trading System(UK ETS)

• Launched in April 2002 the United Kingdom launched the world’s first trading scheme

• The objectives of the UK ETS were to develop expertise and promote learning-by-doing amongst UK Industry and to deliver emission reductions for the nation as a whole prior to the introduction of the EU ETS.

• UK ETS was a voluntary market that ended in December 2006


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European Union Emissions Trading System (EU ETS)

• In January 2005 the European Union (EU) established the largest multi-national Emissions Trading Scheme (ETS) in the world.

• It covers more than 10,000 installations in the energy and industrial sectors that are collectively responsible for close to half of the EU’s emissions.

• EU ETS phased-in stages:– “Trial” period (2005-2007) (Cap: set by member state, Penalty:

€40/excess ton of CO2e)– First commitment period (2008-2012) (Cap: set by member state but

subject to EU Commission approval, Penalty: €100/excess ton of CO2e)

– Second commitment trading period (2013-2020)September 23rd, 2009 finding of European Court of First Instance that the European Commission was wrong to dictate greenhouse gas emission caps to industries in Poland and Estonia under the EU emission trading scheme (ETS) in 2008-12


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Regional Greenhouse Gas Initiative (RGGI)

• Launched in September 2003 by Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, Vermont and Maryland.

• RAGGI partners are committed to developing a regional “Cap-and-Trade” regime covering emissions from power plants in their jurisdiction with subsequent design phases to consider offset protocols.

• Ontario is participating as an observer since 2008.


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Australian Emissions Trading Scheme (AUS ETS)• AUS ETS is set to come into effect in 2010 (Maybe)• Proposed AUS ETS design framework was released in

July 2008• The detailed design of the scheme was finalised by

the beginning of 2009• On August 13th, 2009 Government's (center-left)

proposed emissions trading scheme voted down in the Senate (by ten votes made up equally of Greens and centre-right senators)

• On December 2nd, 2009 the Senate voted 41-33 rejecting the establishment of a “cap-and-trade” scheme.


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Japan Voluntary Emission Trading Scheme (JVETS)

• Launched in May 2005

• Rapidly growing since the beginning of 2008 with over 200 participants (e.g., steal, paper & pulp, ceramics).

• The “monitoring, reporting and verification system” under JVETS can be a basis for a mandatory “Cap-and-Trade) in the future.


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Midwestern Greenhouse Gases Reduction Accord (MGGA)

• Launched on November 16, 2007 by Illinois, Iowa, Kansas, Michigan, Minnesota, Wisconsin, and Manitoba

• MGA partners are committed to developing a regional “Cap-and-trade” system by 2010.

• Ontario is participating as an observer since 2008


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Western Climate Initiative (WCI)• Launched in February 2007 by the four

western states (California, New Mexico, Oregon, and Washington)

• WCI partners grew to include seven states and four provinces.

• WCI partners are committed to lowering their emission rates to 15 % below 2005 levels by 2020, and to implementing a “Cap-and-Trade” system as early as January 1, 2012.

• Ontario switched its participating from an observer to a partner in July 2008.


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Lessens Learned from EU-ETS experienceCAPS• Lack of data led to 27 national goals as

opposed to one EU-wide goal

OFFSETS• No complementary policies for non-

capped sectors added to the compliance confusion

CREDITS• Failure to credit plant shutdowns

created perverse incentives• In ability to bank credit created a bubble

like carbon market (banking will be allowed between Phase 2 and 3)

SCOPE• Inclusion of a large number of small

installations hindered verification and monitoring efforts (Third period >10,000 ton) Overall target of 20% below 1990 levels by

2020


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Q3. How likely will Ontario “emitters” be subject to a “Cap-and-Trade” regime?

• June 2nd, 2008: Ontario signed a Memorandum of Understanding (MOU) with Quebec to develop and implement a “Cap-and-Trade” system as early as January 1, 2010.

• July 2008: Ontario Joined the WCI (committed to lowering their absolute emission rates to 15 % (as opposed to intensity-based) below 2005 levels by 2020 and to implement a “Cap-and-Trade system” as early as January 1, 2012).

• December 1st, 2009: Ontario GHG Emission Reporting Regulation was signed into law. (Mandatory reporting for 26 types of facilities (potential regulated sources) that are emitting 25,000 tonnes of carbon dioxide equivalent (CO2e) or more per year; Reporting of 2010 emissions in the year 2011, and annually thereafter)


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Q3. How likely will Ontario “emitters” be subject to a “Cap-and-Trade” regime? (Cont’d)

• December 3rd, 2009: Ontario passed Bill 185, amending the Environmental Protection Act to provide framework for establishment and administration of a “Cap-and-Trade” system. – regulates emissions trading and other economic and financial

instruments and market-based approaches. – allows for the distribution of economic financial instruments

relating to GHG emissions through sale, auction and by other means.

– requires proceeds from the sale or distribution of such instruments to be deposited in a separate account to used toward supporting and administering GHG reduction initiatives.


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Under the Canadian Federal Government Jurisdiction• January 30th, 2010:

– The Canadian federal government submitted its non-binding GHG reductions target to the United Nations, committing to a 17% cut in GHGs over 2005 levels by 2020.

N.B. – US targets are same as Canada’s– Europe has pledged a 20% cut over 1990 levels by 2020, with a

willingness to increase this pledge to a 30% cut over 1990 levels if other industrialized countries show “comparable effort.”

1990 (Mt)

2005(Mt)

2005 compared to 1990

Current 2020 17% target(Mt) compared to

1990compared to 1990

Canada 592 731 +23.5% 607 +2.5% -17%

US 6,242 7,260 +16.3% 6,026 -3.5% -17%


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• June 26th, 2009: House of Representatives passed a bill called “American Clean Energy and Security Act” [aka Waxman (D-Calif.)-Markey (D-Mass.) Bill) (1,201 page]

– National “Cap-and-trade” regime.

– Coverage: 85% of the economy (including transportation but excluding waste and agriculture)

Target reduction

2005 baseline

1990 baseline

equivalent2012 3% -13%

2020 17% 7%2030 42% 33%2050 83% 80%

Under the US Federal Government JurisdictionHouse of Representatives

Henry Waxman Ed Markey


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• June 17th, 2009: The Senate Energy and Natural Resources Committee passed the “American Clean Energy Leadership Act”, This (Bingaman-D NM) Bil provides a legal and regulatory framework for carbon dioxide capture and storage.

• November 5th, 2009: The “Clean Energy Jobs and American Power Act” (Boxer-D CA, Kerry-D MA Bill) passed the Environment Committee. This Bill:

– provides for a “Cap-and-Trade” scheme under the name a “Pollution Reduction and Investment” (PRI) mechanism.

– has to “pass” the remaining five committees with jurisdiction over the bill (Agriculture, Foreign Relations, Commerce, Finance and Nutrition, and Forestry committees and

– has to “await” for the comprehensive economic analysis to be conducted by the Environmental Protection Agency before final vote.

• March 22nd, 2010: Introduction of “The Carbon Capture and Sequestration Deployment Act”, (Rockefeller-D VW and Voinovich- R OH) creates incentives to develop and deploy CCS technology.

• April 22nd, 2010 ?: A KGL Bill (Kerry (D-MA), Graham (R-SC) and Lieberman (I-CT). The Bill is expected to:

– federal cap pre-empting separate state/regional limits.– Sector-by-sector caps starting with power (2012) and manufacturing (2016)– Tax on fuel abased on carbon content– A "hard collar" on the price of emission permits of no less than $10 per ton of carbon emitted and no more than

$30 per ton– A "carbon tariff" to imports of goods from countries that do not regulate their carbon emissions.– A threshold of 25,000 tons of carbon per year

Under the US Federal Government Jurisdiction (Cont’d) The Senate

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• April 2, 2007: In Massachusetts v. EPA, the Supreme Court found that greenhouse gases are air pollutant covered by the Clean Air Act. The Court held that “the Administrator must determine whether or not emissions of greenhouse gases from new motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision”.

• December 7, 2009: The “Administrator” signed the following two findings:– Endangerment Finding: The current and projected concentrations of the greenhouse

gasses in the atmosphere threaten the public health and welfare of current and future generations

– Cause or Contribute Finding:. The combined emissions of these greenhouse gases from new motor vehicles and motor vehicle engines contribute to the greenhouse gas pollution which threatens public health and welfare.

• This action is a prerequisite to finalizing the EPA's proposed greenhouse gas emission standards for light-duty vehicles, which EPA proposed in a joint proposal including the Department of Transportation's proposed CAFE standards on September 15, 2009.


Under the US Federal Government Jurisdiction (Cont’d)The Supreme Court


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Q4: Which “emitters” are likely to be impacted by a “Cap-and-Trade” regime?

Answer: Based on 2007 emissions data, certain plants in the following sectors

1. Fossil-Fuel Electricity Generators

2. Iron and Steel Industry

3. Cement and Lime Industry

4. Chemical Industry

5. Petroleum Refining Industry

6. Non-ferrous Metals Industry

7. Natural Gas Transmission and Distribution Industry

8. Waste Landfill Industry

9. Pulp and Paper Industry

10.Car Industry


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Ontario 2007 LFE*s of CO2e Emissions 1. Fossil-Fuel Electricity Generators (1 of 2)

* A Large, Final Emitter (LFE) is a site which emits over 100,000 tonnes per year CO2e of greenhouse gases.Source: Environment Canada

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Ontario 2007 LFE*s of CO2e Emissions 1. Fossil-Fuel Electricity Generators (2 of 2)

* A Large, Final Emitter (LFE) is a site which emits over 100,000 tonnes per year CO2e of greenhouse gases. Source: Environment Canada

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Ontario 2007 LFE*s of CO2e Emissions 2. Iron and Steel Industry


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Ontario 2007 LFE*s of CO2e Emissions 3. Cement and Lime Industry


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Ontario 2007 LFE*s of CO2e Emissions4. Chemical Industry


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Ontario 2007 LFE*s of CO2e Emissions5. Petroleum Refining Industry


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Ontario 2007 LFE*s of CO2e Emissions6. Non-Ferrous Metals Industry


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Ontario 2007 LFE*s of CO2e Emissions 7. Natural Gas Transmission and Distribution Industry


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Ontario 2007 LFE*s of CO2e Emissions 8. Waste Landfill Industry


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Ontario 2007 LFE*s of CO2e Emissions 9. Pulp and Paper Industry


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Ontario 2007 LFE*s of CO2e Emissions 10. Car Industry

* A Large, Final Emitter (LFE) is a site which emits over 100,000 tonnes per year CO2e of greenhouse gases.

Source: Environment Canada

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Assembly

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Q5: What technological solution available to large “emitters” to continue to prosper and grow in a “Cape-and-Trade” environment?

Answer: Yes, Carbon Capture and Storage (CCS)Carbon Capture and

Storage (CCS) involves capturing carbon dioxide from large industrial sources before it is emitted into the atmosphere. Once captured, it is injected through wells into deep geological (depleted oil and gas field, man-made salt caverns, or saline Aquifers) formations for safe and permanent storage.


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Barriers to the Deployment and Commercialization of Geological Storage (GS) in Ontario

• Incomplete to non-existing geo-science assessment of storage sites and their relation to emission sources at the regional, basin, provincial, local, and site scale

• Lack of economic instruments for industry to address the cost of capturing and transporting CO2 in large quantities to the identified geological storage sites for injection (90-95% of total cost of CCS)

• Incomplete to non-existing of a CCS legal and regulatory frameworks

• Incomplete to non-existing effort to gain public accept of the use of GS in Ontario


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Current Price of Carbon (C$ 75-80/tonne needed for CCS in the absence of direct subsidy)

Description Market Region Market Price

EU Emission Allowance (EUA) Europe €13.50 / tonne

Certified Emission Reduction (CER) Europe, Global €12.25 / tonne

Regional GHG Initiative Allowance (RGGI) Northeast US $2.13 / ton

Carbon Financial Instrument (CFI) North America $0.10 / tonne

CFI – US Futures (Dec 2013) United States $6.50 / tonne

Climate Reserve Tonnes (CRT) North America $4.50 / tonne

Alberta Offsets Alberta C$12.00 / tonne

Voluntary Emission Reduction (VER) Global Varies


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Q6. What are elements of a potential “Cap-and-Trade” regime?

1. “Caps” and “Baselines”

2. “Allowances”, “distribution” and “Compliance period”

3. “Scope”, “thresholds” and “phasing-in”

4. “Offsets” and “Protocols”

5. “Incentives”

6. “Regulatory mechanism”


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Elements of evolving U.S. & Ontario “Cap-and-Trade” regimes

1. “Caps” and “Baselines (static or dynamic)”

Canada and US Federal Government’s• 17 % reduction in emissions from 2005 levels by

2020

Ontario’s• 6% reduction in emissions from 1990 by 2014, • 15 % by 2020, and • 80 % by 2050.


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Elements of evolving U.S. “Cap-and-Trade” regimes 2. “Allowances, distribution and compliance periods”

Definition: The total emissions allowed under the cap are divided into units called “allowances” with each allowance =one tonne of CO2e.

Allowances:The Senate’s CEJAPA Bill• Floor price of $11 and • Ceiling price of $28 per allowanceDistribution:The Senate’s CEJAPA Bill• 25% of allowances to be auctioned with

proceeds going directly to a “Deficit Reduction Fund” created under the U.S. Treasury.


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Elements of evolving U.S. “Cap-and-Trade” regimes 3. “Scope, thresholds and phasing-in”

Thresholds: 25,000 tonne CO2e (House and Senate Bills)

WCI First compliance period (2012-2015): Electricity generation Combustion at industrial and commercial facilities Industrial process emission sources

WCI Second compliance period (2015-2018): Residential, commercial, and industrial fuel combustion at facilities

with emission below thresholds (to be covered at the upstream sources)

Transportation fuel combustion (to be covered at the upstream sources)

WCI Exemptions: Biomass (determined by WCI partners to be carbon neutral)


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Elements of evolving U.S. “Cap-and-Trade” regimes 4. “Offsets” and “Protocols”

The House’s ACES Bill• Ceiling of 30% of non-US “offsets”• Agriculture Department to manage “Offsets” (including setting

protocols – “recipes” for quantifying and monitoring offsets”)

The Senate’s CEJAPA Bill• the creation of an “Offsets Integrity Advisory Board” with power to

enforce sanctions. (including setting protocols – “recipes” for quantifying and monitoring offsets”)

• third-party verification• Ceiling of 25% of non-US “offsets”

N.B. National Corn Growers Association is lobbying against the “Offset Integrity Advisory Board”


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Elements of evolving U.S. “Cap-and-Trade” regimes 5. “Incentives”

The House’s ACES Bill • Incentives for commercial deployment of Carbon Capture and Storage

(CCS)

The Senate’s CEJAPA Bill• For early actions of Coal fired power plants coupled with Carbon Capture

and Storage (CCS) projects commencing commercial operation before Jan. 1, 2017 and

– demonstrating a 90 % capture rate gets a $96 and $85 per tonne of CO2e for the first and second 10GWH and an additional bonus allowance of $10 per tonne of CO2e for the first five years.

– achieving at least 50% reduction and associated with EOR gets $50 per tonne. Also the EPA administrator can lower or raise the price of bonus allowances “to achieve efficient and cost-effective commercial deployment of carbon capture and sequestration technology.”

• 15 % of emissions allowances from 2015-2019 to support commercial deployment of CCS for industrial manufacturing purposes.


43

Elements of evolving U.S. “Cap-and-Trade” regimes 6. “Regulatory Mechanism”

The House’s ACES BillSplits market oversight between the Federal Energy Regulatory Commission

(FERC) and Commodities Futures Trading Commission

(CFTC)

The Senate’s CEJAPA Bill Full market oversight authority within the

Commodities Futures Trading Commission (CFTC)


44

Q7. What is being done in adjacent jurisdictions? (Cont’d)

Provincial/State Government

• Active participation is the development and deployment of large-sale demonstrative initiatives to address the identified barriers

What are adjacent jurisdiction going but not Ontario?• develop and deploy two such initiatives on in the

Michigan Basis (in close proximity to the Chemical Valley and the other in the Appalachian Basin (in close proximity to the Steel Industry)

• Use the knowledge acquired from such demonstrative initiatives to identify sink locations for the petrochemical and steel industries, and to develop a suitable regulatory framework


45


Security Exchanges• “Material information”:

– Definition: information likely to influence or change reasonable investor’s decision to buy, sold of hold securities if the information was omitted or misstated.

– Disclosure controls and procedures• Disclosure of climate change risk factors relating

to issuer and its business– Physical risk– Litigation risks– Regulatory risks– Other risks


46


Large Emitter’sCompliance Management Strategy

Develop corporate compliance governance structure (internal management and controls)

Develop Scenarios to optimize business objectives

Integrating information management needs into existing IT systems

Development of supporting technologies for internal abatement (CCS)

CarbonManagement

policies

Multi-yearemission

inventories

Current &projectedallocated

allowances

Gapsidentification

Option identification

and analysis Carbon

portfolio

Emission reporting

Financial Reporting

(disclosures of environmental

risk)

Riskmonitoring

Accountingand tax

Carbon management

Alignment and

integrationactivities

Internalabatement

Buy additional allowances

Buy/obtainoffsets

Pay into technology

fund


47

Questions?

Andrew Hewitt, B. Eng. Sc., MBA

Ministry of Natural Resources

Cell: (519) 639-0879

E-mail: [email protected]

mailto:[email protected]�

carbon capture and storage (ccs) in a north american “cap...

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