Emission Limits for Ontario's Electricity Generators and Other Major Sources
(A Detailed Technical Description)

Emission Caps:

NO_X and SO₂ are key pollutants causing smog and acid rain. Initial limits would cap total annual emissions of NO_X and SO₂ from all coal or oil fired electric generating plants in Ontario greater than 25 MW (megawatts) in capacity. The six fossil fueled (5 coal and 1 oil/gas) thermal generating stations (TGS) currently owned by Ontario Power Generation fall into this category. The stations are Lambton TGS, Nanticoke TGS, Lakeview TGS, Lennox TGS, Atikokan TGS and Thunder Bay TGS. At the end of each year, owners of the stations would be required to surrender emission allowances which match their emissions of NO_X and SO₂ for the year. Total allowances dispersed by the government in a given year will equal the regulated cap. Owners of these stations would be allowed to use emissions trading to meet the emission caps (see section on trading below). The proposed emission caps are listed in Table 1. Future limits for the electricity sector will include fossil-fueled electricity generating facilities not covered in the initial limits (eg. combustion turbines). The government is committed to reducing total NO_X emissions by 45% below the 1990 levels as part of the Anti-Smog Action Plan commitment and SO₂ emissions by 50% below the Countdown Acid Rain cap by 2015 and will adjust regulations in future years to ensure progress in meeting these targets.

Table 1: Annual net Emission Caps for the Electricity Sector; Starting in 2001
POLLUTANT	CAP	UNITS
Nitrogen Oxides (NOX)	36	kilotonnes of NOX (reported as NO)
Sulphur Dioxide (SO2)	157.5	kilotonnes of SO2

Emissions Performance Standards:

Emissions performance standards (EPSs) for the electricity sector will also be imposed that will limit the amount of NO_X and SO₂ which can be generated per unit of electricity produced from coal or oil fired plants. The EPSs will apply to any electricity generated by coal or oil fired stations greater than 25 MW and located in Ontario, and any electricity sold for use in Ontario which was generated in another province or the United States by a coal or oil units with an output capacity greater than 25 MW. The EPSs will require that electricity produced or sold in Ontario must generate NO_X or SO₂ at rates less than or equal to the rate specified in Table 2. A company with more than one generator unit would be allowed to average the emission rates from its coal/oil units weighted according to unit production.

New combustion turbines in Ontario have emission performance standards written into the certificate of approval for the facility.

Entities failing to comply with their obligations to meet their net emissions caps or emissions performance standards could face fines or the removal of their licenses to generate electricity in, or sell electricity in, Ontario.

Emissions Trading:

The Ministry is proposing a "Cap, Credit and Trade" emissions reduction trading program. The trading program would maintain environmental protection while providing flexibility for industry to adapt to tough environmental standards. Trading rules will be developed in consultation with stakeholders and provisions for emissions trading will be established by regulation. A future posting to the Environmental Bill of Rights Registry will provide detailed proposed trading rules for comment.

Trading of Emission Allowances

Capped emitters of NO_X or SO₂ would be allowed to trade allowances of the emission caps.

Initially, Ontario Power Generation as the owner of all power stations covered by the cap would receive an annual allowance equal to the emission caps listed in Table 1 (e.g., 36 kt of NO_X and 157.5 kt of SO₂ in the year 2001). As part of the restructuring of Ontario’s electricity sector, Ontario Power Generation is required to reduce its share of the Ontario electricity market production. When Ontario Power Generation decontrols (sells) its oil fired station or one of its coal fired stations, it will need to transfer part (an allowance) of the NO_X and SO₂ emission caps to the new owner and inform the Ministry of the Environment. An allocation system will be developed to deal with future years when emitters covered by the cap are owned by a variety of companies. Any capped emitter of NO_X and/or SO₂ would be allowed to buy or sell allowances of these substances to meet emission caps. To demonstrate compliance at the end of each year, each company would be required to retire emission allowances equal to its net emissions for the year. Unused allowances of NO_X and/or SO₂ could be carried-over from one compliance period for use in another (i.e., banked).

Emission Reduction Credit Trading

In addition, capped emitters of NO_X and/or SO₂ would also be allowed to purchase Emission Reduction Credits (ERCs) from non-capped sources to meet their regulated limits (caps), subject to ERC creation and trading rules as will be described in detail in a future posting on the Environmental Bill of Rights Registry. In general, ERC trading could include the following elements:

• An emitter of NO_X and/or SO₂, which is not subject to a regulated emissions cap, but can reduce emissions of NO_X and/or SO₂ below its historical baseline or new legal limit (whichever is lower), would be permitted to create emission reduction credits (ERCs) saleable to capped emitters. The result would be environmental (airshed loadings) goals being met, but at a reduced overall cost to society. The range of emitter types that would be permitted to create ERCs will be the subject of discussions prior to regulation development;
• Purchased but unused ERCs, like allowances, could be carried-over (banked) from one compliance period for use in another;
• Purchased NO_X and SO₂ ERCs, also like allowances, would be tradeable between capped sources (i.e., once purchased, ERCs would become equivalent to allowances under a cap, subject to any audit provisions that may apply to ERCs);
• Capped sources would not be allowed to create ERCs (capped sources can buy and sell ERCs and allowances);
• ERCs created by sources outside the capped entities must meet all five of the following criteria:

• Real: an emission reduction is real if it is a reduction in actual emission rate, resulting from a specific and identifiable action or undertaking which is not a mere change in activity level, (e.g., due to typical business fluctuations).
• Quantifiable: an emission reduction is quantifiable if the total amount of the reduction can be determined, and the reduction is calculated in a reliable and replicable manner.
• Surplus: an emission reduction is surplus if it is not otherwise required of a source by current regulations or other obligations (e.g., a voluntary commitment).
• Verifiable:an emission reduction is verifiable if other parties are able to audit and confirm the source data used to develop the credit.
• Unique: credits shall only be created and registered once from a specific reduction activity and time.

• ERCs used by the purchaser in Ontario must not have been created outside of a defined Ontario airshed. ERCs and allowances used in Ontario will be subject to the following restrictions:

• NO_X: directionally NNW to SSE, distance 1,500 km; and
• SO₂: directionally NE to W to SE, distance 3,000 km.

Discounting the value of the ERCs and allowances from distant sources shall be used beyond 300 km to reflect the relative impact on the airshed.

ERCs created prior to the emissions regulation coming into force must be posted to the registry within 6 months of the date that the regulation comes into force.

Detailed trading rules would be developed in consultation with stakeholders. These discussions would address ozone season vs non-ozone season credit creation/use and the 10% environmental discount feature that is often associated with credit system trading.

A detailed proposal for the rules governing the creation and trading of ERCs will be posted to the Environmental Bill of Rights Registry. The final rules would be established by regulation.

The Ministry of the Environment will need to develop institutional arrangements to enable an emissions reduction credit (ERC) trading system to operate. Fundamental features of the trading system will include a registry which will register the creation of emissions reduction credits so that they can be verified and traded, and the trades monitored.

Additional EBR postings will occur when proposals are made to modify regulations covering other emitters or the introduction of new emission limits.

Broader Air Strategy:

Ontario’s Anti-Smog Action Plan (ASAP) commits the province to reducing by 75% the number of times the province’s one-hour air quality criterion for ozone is exceeded. To achieve this goal, provincial emissions of nitrogen oxides (NO_X) and volatile organic compounds (VOCs) are to be reduced by 45 % of 1990 levels by the year 2015. In addition, a strategy to reduce levels of particulate matter in air is also being developed under the ASAP.

The Canada Wide Acid Rain Strategy for Post 2000 commits Environment and Energy Ministers to developing targets and timelines for reducing SO₂ emissions post 2000. Science supporting the strategy indicates that up to a 75% reduction in SO₂ emissions from both Canada and the U.S. is needed to fully protect aquatic ecosystems in Ontario and eastward.

Ontario’s electricity sector is a significant source of air emissions; it still accounts for 10 - 16% of total provincial NO_X emissions and 12 - 20% of provincial SO₂ emissions. To ensure Ontario’s progress towards the targets of Anti-Smog Action Plan and the Canada Wide Acid Rain Strategy for Post 2000, other sectors will need to reduce air emissions.